Swaps: the overnight fee
Lesson 6 of 31 in the course “Forex”. Free, with animations and a quiz.
What a swap is
A swap is a charge or credit for holding a trade past midnight broker time. Where it comes from: each currency has its own interest rate, set by that country's central bank. Hold a pair overnight and you get the rate difference between the two currencies, so a swap can be a plus or a minus. In the picture: a swap is applied for every night the trade is open. Close within the day and there is no swap.
Why a swap is plus or minus
Example from the picture: currency A pays 5%, currency B pays 1%, a gap of 5 − 1 = 4 percentage points. Buy A against B and you are kind of holding the higher-rate currency, so the swap can be a plus. Sell A against B and it is the reverse: you pay. But the broker adds its own markup, so in practice swaps are often negative in both directions. Find the exact numbers in the spec, the instrument's terms card.
The triple swap
On Wednesday night currency pairs usually get three days of swap at once. The reason is technical: a currency trade settles two business days later, so the Wednesday rollover covers Saturday and Sunday. In the picture: Mon ×1, Tue ×1, Wed ×3, Thu ×1, Fri ×1. Indices, oil and other instruments may use another triple day, often Friday.
Example: how much it adds up to
Example: your trade's swap is −$0.70 per night. You hold it from Monday to the next Monday. Charges: one each for Mon, Tue, Thu, Fri and three for Wednesday: 1 + 1 + 3 + 1 + 1 = 7. Total 7 × 0.70 = $4.90 for the week. Over a month that is about 30 charges: 30 × 0.70 ≈ $21. Tiny for one day, noticeable over time, especially if the trade's target is small.
Swap-free accounts
Islamic accounts, meaning swap-free accounts, are offered for people whose religion forbids paying or receiving interest. Instead of a swap they sometimes charge a fixed holding fee or limit how many days you can keep a trade open. And if you close trades the same day, before broker midnight, there is no swap at all. Rule: treat the swap as part of your costs, just like the spread and commission.
Check yourself
- When is a swap applied?
Correct answer: When you hold a trade past broker midnight. A swap is the fee for rolling a position to the next trading day. Close the trade before broker midnight and there is no swap. - Why is the swap for Wednesday night usually triple?
Correct answer: It covers the weekend. A currency trade settles two business days later, so the Wednesday rollover covers Saturday and Sunday. No separate swap is charged on the weekend itself. - Who barely needs to care about swaps?
Correct answer: Those who close trades within the day. No rollover past midnight, no swap. When you hold for long, swaps add up to a noticeable amount, and EUR/USD has them too.