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Overnight Interest
(Premium)
Every currency and
commodity has a "cost of carry" associated with holding the position for
more than one day. In currencies, this cost is a function of the
"interest rate differential" of the two currencies that comprise the
exchange rate.
For example, in USDJPY,
the interest rate differential is the difference between short-term U.S.
interest rates and short-term Japanese interest rates. If, for
example, U.S. interest rates are 5.0% and Japanese interest rates are
1.0%, the interest rate differential is 4.0% (5.0% - 1.0%). This
means that if a trader was to sell USDJPY, he would have to pay 4.0% of
the notional amount of the contract per year to hold the position.
On one lot, the notional amount is $100,000, so the trader would have to
pay approximately $4,000 to hold the position for one year. This
translates to approximately $11.00 per day per lot for holding the USDJPY
position ($4,000/365).
On the GCI system, these
amounts are calculated for the trader and shown, as dollars per lot per
day, in the "Currency Reference Rates" window under the columns "Prm Buy"
and "Prm Sell":
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