Speculators should know that the overnight exchange rate is going to triple on Wednesday, so what’s going to triple the overnight interest rate on Wednesday? Let’s take a look.
Most banks around the world are closed on Saturdays and Sundays, so they do not calculate interest on overnight positions, but most banks still calculate interest on these days.
For this reason, A POSITION HELD overnight on a Wednesday earns interest for three days, SO a POSITION HELD overnight on a Wednesday usually earns three times as much interest as a position held overnight on a Tuesday.
Why is the overnight interest rate three times on Wednesday?
Mainly because according to international practice, foreign exchange transactions are settled two trading days after Monday: 1 day overnight interest.
Trade on Monday, settle on Wednesday, hold on Monday until Tuesday, settle on Wednesday to Thursday, so pay/charge 1 day interest.
Tuesday: 1 day overnight interest.
Position held from Tuesday to Wednesday, settlement day is Thursday to Friday, so 1 day interest is paid/charged.
Wednesday: 3-day overnight interest.
Position held Wednesday to Thursday, settlement date is Friday to Monday, so 3 days interest is paid/charged.
Thursday: 1 day overnight interest.
Position held from Thursday to Friday, settlement date is next Monday to next Tuesday, so 1 day interest will be paid/charged.
Friday: 1 day overnight interest.
The position is held on Friday until next Monday, and the settlement date is Tuesday through Wednesday, so only 1 day interest is paid/charged.
Note: FOR some brokers, the overnight interest rate is calculated on Thursday for three days.
