Swaps and Liquidity providers - page 2

[Dominik Egert]

Lorentzos Roussos #:

Thank you i'll try and understand .

That would be a very interesting article .

(so in short words : "someone is placing bets on the insurance of the bets")

In short, yes. And that is only a guarantee for insurance, covered by a mortgage paying entity, given a credit based on a bond, based on a state/governmental guarantee, based on future tax incomes....

Or something along these lines.

Then you short that market... As an institute, you sell your short as option or future to others... And because your position is big you use derivatives to cover the margin requirements... And so on...

Because in 10 years wheat will be at 5$, and you signed the contract already, with money you don't have, but will then.... (Futures)

Or you bet on higher prices and you see your position is going down, so you opt for closing your position in iE 3 days, so you sell options on the closing.... (Options)

...

Edit:

Did you watch "The big Short"?

[Alain Verleyen]

Dominik Christian Egert #:

I am confident after studying this document, you will update your calculations...

It has nothing to do with margin or with leverage, but it is probably as flexible (complicated) as margin calculations are..

It depends for what you want to calculate the swap.

Take a look:

https://www.investopedia.com/terms/s/swap.asp

Please don't make me explain this, because I don't want to... Could write an article about money calculations for retail traders instead.

This document will lead to the same confusion I am afraid. It's about trading the swap which is a different thing.

While Lorentzos is talking about the swap related to a Forex position.

(Simplified) explanation.

Trading EURUSD, you need to consider the interest rate of both EUR and USD. Currently EUR is say 3.25% and USD is 5.25% (for example, fictive values while close to current reality). So if you BUY 1 lot of EURUSD, you buy EUR with USD, you need to borrow USD (you don't really have 10X.000 USD right ?). So the USD rate is in your disfavor and the EUR rate in your favor. The swap long rate is negative (-2%).

If you sell EURUSD, it's the reverse, your borrow EUR, you profit from USD, the swap is positive in this case (+2%).

Of course the swap rates (long/short) are not equal to EUR and USD interest rates directly, the broker, the LP and who knows who additionally will benefit from your money, so instead of +/- 2% it becomes +.5%/-3.5% for example. That's also, very often you have both long and short swaps negatives.

With MT5, the swaps for Forex are often given in points and not in %.

See https://www.litefinance.org/blog/for-beginners/what-is-swap-in-forex-trading/

[Lorentzos Roussos]

Dominik Christian Egert #:

In short, yes. And that is only a guarantee for insurance, covered by a mortgage paying entity, given a credit based on a bond, based on a state/governmental guarantee, based on future tax incomes....

Or something along these lines.

Then you short that market... As an institute, you sell your short as option or future to others... And because your position is big you use derivatives to cover the margin requirements... And so on...

Because in 10 years wheat will be at 5$, and you signed the contract already, with money you don't have, but will then.... (Futures)

Or you bet on higher prices and you see your position is going down, so you opt for closing your position in iE 3 days, so you sell options on the closing.... (Options)

...

Edit:

Did you watch "The big Short"?

Hmmm damn that is complex.

I have but i may rewatch it after that 😊

[Lorentzos Roussos]

Alain Verleyen #:

This document will lead to the same confusion I am afraid. It's about trading the swap.

While Lorentzos is talking about the swap related to a Forex position.

(Simplified) explanation.

Trading EURUSD, you need to consider the interest rates of both EUR and USD. Currently EUR is say 3.25% and USD is 5.25% (for example, fictive values while close to current reality). So if you BUY 1 lot of EURUSD, you buy EUR with USD, you need to borrow USD (you don't really have 10X.000 USD right ?). So the USD rate is in your defavor and the EUR rate in your favor. The swap long rate is negative (-2%).

If you sell EURUSD, it's the reverse, your borrow EUR, you profit from USD, the swap is positive in this case (+2%).

Of course the swap rates (long/short) are not equal to EUR and USD interest rates directly, the broker, the LP and who knows who additionally will benefit from your money, so instead of +/- 2% it becomes +.5%/-3.5% for example. That's also, very often you have both long and short swaps negatives.

With MT5, the swaps for Forex are often given in points and not in %.

See https://www.litefinance.org/blog/for-beginners/what-is-swap-in-forex-trading/

The central bank deposit rates ?

So there is a spread in the swaps too 

Thanks

Edit : So the broker earns 109200*0.02 $ every night for a one lot position ?  2184$ and gives me 3.48$ ?

[Alain Verleyen]

Lorentzos Roussos #:

The central bank deposit rates ?

So there is a spread in the swaps too 

Thanks

Edit : So the broker earns 109200*0.02 $ every night for a one lot position ?  2184$ and gives me 3.48$ ?

Of course not. How are you coming to these numbers ?!?

[Dominik Egert]

Alain Verleyen #:

This document will lead to the same confusion I am afraid. It's about trading the swap which is a different thing.

While Lorentzos is talking about the swap related to a Forex position.

(Simplified) explanation.

Trading EURUSD, you need to consider the interest rate of both EUR and USD. Currently EUR is say 3.25% and USD is 5.25% (for example, fictive values while close to current reality). So if you BUY 1 lot of EURUSD, you buy EUR with USD, you need to borrow USD (you don't really have 10X.000 USD right ?). So the USD rate is in your disfavor and the EUR rate in your favor. The swap long rate is negative (-2%).

If you sell EURUSD, it's the reverse, your borrow EUR, you profit from USD, the swap is positive in this case (+2%).

Of course the swap rates (long/short) are not equal to EUR and USD interest rates directly, the broker, the LP and who knows who additionally will benefit from your money, so instead of +/- 2% it becomes +.5%/-3.5% for example. That's also, very often you have both long and short swaps negatives.

With MT5, the swaps for Forex are often given in points and not in %.

See https://www.litefinance.org/blog/for-beginners/what-is-swap-in-forex-trading/

Yes, I posted the wrong link...

The link I wanted to post had it broken down almost like your explanation.

I'll leave it the way it is, so your post keeps context, and I don't break the chain.

[Lorentzos Roussos]

Alain Verleyen #:
Of course not. How are you coming to these numbers ?!?

from the delta in the rates and because the lp needs to move 100K . 2% of 100K is 2000$

So in this case the margin (~3600$) for 1Lot is the collateral essentially .

[Alain Verleyen]

Lorentzos Roussos #:

from the delta in the rates and because the lp needs to move 100K . 2% of 100K is 2000$

So in this case the margin (~3600$) for 1Lot is the collateral essentially .

It's 2% yearly !

[Alain Verleyen]

Alain Verleyen #:
Of course not. How are you coming to these numbers ?!?

Let's take an example.

1 lot position on EURUSD, USD account. Broker swap in points : -10 for long, +2 for short (rounded actual number from a broker I have).

In theory the differential of interest rates between EUR and USD should be symmetrical, so in this example -6 for long, +6 for short.

A buy position swap for one day will be : -10 USD. (-10 * 1 USD [tickvalue] * 1.0 [volume]). That's what you will pay. While the broker, it will be -6 USD. So they earn 4 USD from your position.

I let you do the same for a sell position.

Of course this is simplified, I don't know who all of that is done between the broker, the liquidity provider, and the liquidity provider of the liquidity provider, the banks or whatever else is behind the scene. Maybe Dominik knows more about these details, but while it's always interesting to know, it's doesn't really matter for the retail trader.

[Lorentzos Roussos]

Alain Verleyen #:
It's 2% yearly !

The deposit rate is yearly ? owww 

i was looking at these 

The 3.48$ was the result of the calculation algorithm . Calculation is not the issue , as Euribor said i was interested in the mechanism .