Module 2: Your real trading costs · Lesson 7 of 11
Swap and overnight financing
3 min read
A swap (also called rollover or overnight financing) is an amount charged to, or occasionally paid into, your account when you hold a position past the broker's daily cut-off time. It reflects the difference in interest rates between the two currencies in the pair, plus the broker's own mark-up.
Why swaps exist
When you trade a currency pair, you are effectively borrowing one currency to hold the other. Each currency carries its own interest rate. If the currency you hold earns more interest than the one you borrowed, the swap may be positive. If it earns less, the swap is negative and you pay. Because brokers add a fee, many swaps end up negative on both the long and short side.
When swaps are charged
- Swaps apply only to positions still open at the daily rollover time, which most brokers set around the end of the New York trading day.
- Close the trade before rollover and no swap is charged.
- Most brokers apply a triple swap on one weekday, often Wednesday, to account for the weekend. Check your broker's schedule.
A worked example
Example: The figures here are illustrative. Your platform shows a swap of minus $6 per standard lot per night for a long position on a pair. You hold 2 lots for 5 trading nights, one of which is a triple-swap night. That is 4 normal nights plus 3 for the triple, or 7 night-equivalents, so the cost is 7 × $6 × 2 lots = $84.
That cost has nothing to do with whether the trade was right or wrong. It simply comes from holding the position over time.
Swap-free accounts
Some brokers offer swap-free accounts, often called Islamic accounts, for clients who cannot pay or receive interest for religious reasons. These usually replace swaps with a different fee structure, so they are not automatically cheaper.
Risk: Interest rates change, and so do swap rates. A trade that pays a positive swap today might cost you money later.
Who should care most?
Day traders who close every position before rollover rarely pay swaps. Swing and position traders who hold for days or weeks can find swaps become one of their biggest costs, so it is worth checking the rate before entering a longer trade.
Key takeaways
- Swap is overnight financing based on the interest rate gap between two currencies, plus a broker mark-up.
- It is charged only on positions open at the daily rollover time.
- One weekday usually carries a triple swap to cover the weekend.
- Longer holding periods make swaps a much bigger part of your costs.
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