Swap rates and the markup hiding inside them

[Shadow Trader]

Swap isn't a pure interest-rate differential. Brokers take a cut, and the size of that cut varies enormously between firms.

On paper, being long a higher-yielding currency against a lower-yielding one should earn a credit. Quite often it earns a small credit or none at all, while the opposite direction pays a large debit. The gap between the two is the broker's markup, and it can be several times larger than the true rate difference.

For anyone who scalps and closes everything before rollover, none of this matters. For anyone who occasionally lets a trade run overnight, or runs a hybrid style, the markup quietly eats returns that look fine on the chart.

Comparing the swap table with the central bank rate differential takes ten minutes and often shows a surprising result. Two brokers with identical spreads can differ by a lot here.

It also changes with time. Swap values get updated, sometimes without any announcement, and an old screenshot can mislead.

Swap tables often differ between long and short sides in ways that don't match the rate differential. A pair with a theoretical credit on the long side may show a debit on both sides, since the broker's markup exceeds the credit. Comparing the long and short values side by side shows the markup immediately: the average of the two is the broker's cut, and the difference is the true carry.

Is there a broker out there with swap tables that look reasonably honest?