Traditionally inter-bank foreign exchange transactions are settled on pre-arranged value dates. In other words if a trader sells 1 million EUR against USD spot on Wednesday, that means he must deliver the value of 1 million Euros on Friday in order to receive the USD equivalent sum based on the exchange rate agreed upon. (settlement dates in the spot market are valued on a 2 working day basis).
We adopt a method of operation by which there are no value dates on any operations and no close out and re-opening of open positions at close of business. We call this process a synthetic spot transaction. This results in a simple one line transaction on the customer's transaction statement instead of an extremely complicated multi-entry statement which is generally unintelligable for anyone not very well aquainted with interbank transactional dynamics.
We both credit and debit interest on open positions held overnight. The overnight interest credit/debit is presented as a simple flat fee either paid or charged on a customer's account. This process makes for extremely simple statements and greatly increased executional transparency since we do not modify the original price of the position entered into by the customer.
For the sake of transparency and unlike any other online broker we actually have a complete explanation of applied interest rates and the very tight interest rate spreads we apply. The exact calculation is based on 1 day interbank deposit rates and is as follows:
1) (1 day interbank dep. rate for base ccy.) - (1 day interbank dep. rate for counter ccy.) = interest rate differential.
2) Interest rate differential / 365 = daily differential.
3) (Daily differential x total open position in currency pair) / 100.
Please note that the "total open position" for precious metals is the equivalent dollarised value. Example 200 ounces of gold is worth about 85'000 USD (13/04/05 rates).
Overnight interest rates are credited & debited on any positions held after 24:00 CET every day of the week.
The exact interest rates for credit and debit can be found in the table underneath and are updated on a daily basis.
Example (based on 13/04/05 rates) : If a customer keeps a long 100'000 GBPJPY position overnight, we would calculate his interest credit in the following way:
1) Long GBP (4.76) - Short JPY (0.06) = 4.70
2) 4.70 / 365 = 0.012876
3) (0.012876 x 100'000) / 100 = 12.88 GBP Credited to the customer's account.
Example (based on 13/04/05 rates) : If a customer keeps a long 100'000 EURUSD position overnight, we would calculate his interest debit in the following way:
1) Long EUR (1.94) - Short USD (2.82) = -0.88
2) -0.88 / 365 = - 0.00241
3) (- 0.00241 x 100'000) / 100 = 2.41 EUR Debited from the customer's account.