How is the overnight interest rate generated in foreign exchange transactions?

Every currency has a buying and selling interest, just as depositing funds in the bank charges corresponding interest, while borrowing requires repaying the bank interest.

The same is true for foreign exchange overnight interest, but it is for the payment of interest between a currency pair, so it is more complicated than our traditional bank interest settlement.

Buying a currency is equivalent toForex PlatformDepositing a currency; selling a currency is equivalent to borrowing a currency from the platform, and we have to pay interest.

To buy or sell any currency pair, the currency you buy will receive interest, and the currency you sell will pay interest; the difference between the two currencies is the overnight interest paid every day.

How does foreign exchange overnight interest affect transaction costs?

Each currency also has its own interest rate: when the interest rate of the purchased currency is higher than the interest rate of the sold currency, the foreign exchange trader can earn overnight interest ("positive overnight interest"); but if the interest rate of the purchased currency is lower than the interest rate of the sold currency, the foreign exchange trader needs to pay overnight interest ("negative overnight interest").

Therefore, overnight interest rates may increase the transaction costs for foreign exchange investors, and may also increase the profits of traders.