You are probably referring to rollerover interest. Sometimes you lose this amount overnight, but other times you find money credited into your trading account overnight.
In the spot forex market, all trades must be settled in 2 business days. A rollover refers to the process of closing open position for today’s value date, and the opening of the same position for the next day’s value date, at a price reflecting the difference in interest rates between the two currencies.
In accordance with international banking practices, Forex brokers automatically roll over all open positions to the next date at 5 PM EST for settlement.
Rollover involves exchanging the position being held for a position expiring the following settlement date. For example, for trades executed on Monday, the value date is Wednesday.
However, if a position is opened on Monday and held overnight, the value date is now Thursday. The exception is a position opened and held overnight on Wednesday. The normal value date would be Saturday; because banks are closed on Saturday the value date is actually the following Monday. Due to the weekend, positions held overnight on Wednesday incur or earn an extra two days of interest.
Trades with a value date that falls on a holiday will also incur or earn additional interest. Forex Traders can earn interest on rollovers, depending on the direction of their positions and interest rate differential between the two currencies involved.
For instance, the primary interest rates in Great Britain are much higher than in Japan, so if a trader buys GBP, he/she will earn interest at 5 PM EST time. on the other hand, if he/she sells GBP in this currency pair, he/she will pay interest at 5 PM EST time.
Overnight Interest/Rollover is automatically paid to a client’s account after buying a currency with greater Interest Rate in its country, and charged to a client’s account if the country issuing this currency has smaller Primary Interest Rates.
Hong Kong Equities Far From Entering Momentum Regime?
Market breadth analysis provides a glimpse into how investors feel about overall markets in general.
The Hang Seng Index is a free float capitalization-weighted index of selection of companies from the Stock Exchange of Hong Kong. The index was developed with a base level of 100 as of July 31, 1964.
Of the members in the Hang Seng Index, we would like to know how many are trading above its own 200 days moving average. The moving average is largely accepted to be representative of the long term trend of the stock. The percentage of the index members trading above the 200 days moving average gives us an idea how the market is trading.
We plot this from 2004 to today.
Data source: Bloomberg
From 2004 to 2007, 80% to 100% of index members are trading above their 200 days moving average. At it’s low in 2009, almost all members are trading below their 200 days moving average.
Clearly during a period of momentum during 2004 to 2007 within our data set, the high percentage of members is stable at around 80% – 100%. Prices continue to soar as observed by the soaring index value. This sort of price behavior is representative of strong momentum.
Data source: Bloomberg
For the past year, we see a steady decline in the percentage of index members trading above the 200 days moving average from Apr 2011 to Sep 2011, hitting a low of 10%. As of 24th Apr 2012, 69% of Hang Seng Index members are trading above their 200 days moving average.
We are still one notch away from the sustained 80%-100% seen during periods of extreme momentum.
Watch this space as we perform such market breadth analysis and monitoring on a regular basis.