Swap in trading: The hidden cost that traders should not overlook

Entering the CFD or Forex market, investors often focus on profit from price differences. However, there is another important cost factor that is often overlooked: Swap (Swap), also known in financial terms as “Overnight Interest” or “Rollover Fee.” Understanding the mechanics of swaps will help you calculate the actual costs and plan your trades more wisely.

What is a Swap: Interest for Holding Overnight Positions

When you hold a trade position overnight (beyond the daily market close), you will need to pay a fee called a swap. This is not a fee in itself but reflects the interest rate differential (Interest Rate Differential) between the currencies or assets you are trading.

Origin of Swap in Forex Trading

When trading currency pairs like EUR/USD, you are simultaneously buying and selling:

• Long Order (Buy) EUR/USD: You buy euros (with a policy rate of 4.0% per year from the ECB) and borrow US dollars (with a policy rate of 5.0% per year from the FED) to settle the trade.
• Short Order (Sell) EUR/USD: You sell euros (borrow euros) and buy US dollars (hold dollars).

The interest rate differential is the real swap. For example:

• Buy EUR/USD: earn EUR (4.0%) interest but pay USD (5.0%) interest = net negative 1.0% per year
• Sell EUR/USD: pay EUR (4.0%) interest but receive USD (5.0%) interest = net positive 1.0% per year

However, brokers acting as intermediaries will add their own handling fees, so the actual swap you receive may differ from the theoretical calculation.

Types and How to View Swaps on Trading Platforms

Positive and Negative Swaps

Positive Swap: You receive extra funds credited to your account, occurring when the interest of the asset you buy exceeds that of the asset you borrow.

Negative Swap: You pay out of your account, which is the most common situation when interest does not favor your position.

Viewing Swaps on MT4/MT5 Platforms

1. Open Market Watch (Asset List)
2. Right-click on the asset
3. Select Specification
4. Find Swap Long and Swap Short

The numbers shown are usually in Points, which need to be converted accordingly.

How to Calculate Swap Costs Precisely

Calculation from Points (MT4/MT5)

Basic formula: Swap (Money) = (Swap Rate in Points) × (Value of 1 Point)

Example: You trade 1 Lot EUR/USD to buy

• Swap Long = -8.5 Points
• 1 Point of EUR/USD 1 Lot = $1 USD(
• Result: )-8.5( × )$1### = -$8.5 per night
• If it’s a 3-Day Swap night: -$8.5 × 3 = -$25.5

( Calculation from Percentage per Night

Formula: Swap )Money( = )Total Position Value( × )Swap Rate %(

Example: Buy 1 Lot EUR/USD at 1.0900

• Total value: 1 × 100,000 × 1.0900 = $109,000
• Swap rate: -0.008% per night
• Swap: $109,000 × )-0.00008( = -$8.72 per night

Key Point: Swaps are calculated based on the full position value, not on the margin. Therefore, with high leverage, swap costs can become very significant.

Calculating 3x Swap )3-Day Swap###

This is a common pitfall for beginner traders. Usually, swaps are calculated daily, but there is one day in the week when the swap is tripled.

( Technical Reason

The Forex market has a T+2 settlement cycle )2 business days after the trade(. When you trade on Wednesday, the settlement falls on Friday. Holding a position from Wednesday to Thursday passes through the weekend )Friday-Sunday(, so brokers consolidate the swaps for all three days into one night )mostly Wednesday or Friday nights###.

Note: The 3-Day Swap calculation date may vary by broker and asset type. Always check with your broker.

Swaps for Different Asset Types

( Stocks/Indices )Stocks/Indices### Swaps generally depend on the interest rates of the currencies in which the stocks are traded, e.g., US stocks use USD rates plus or minus broker fees.

( Commodities )Commodities( More complex, possibly based on storage costs )Storage Costs### or futures contract rollovers from one month to the next.

( Cryptocurrencies )Crypto### Typically based on the funding rate in the market, which can be highly volatile.

Opportunities and Risks of Swaps

( Main Risks

Profit Erosion: If you make a $30 profit from trading but hold for only 3 nights and are charged a 3-Day Swap of $26, your net profit is only $4.

Forcing Closure of Positions: In sideways markets )Sideways###, holding positions with negative swaps results in small daily losses, which can lead traders to close their positions prematurely.

Leverage Risks: High leverage makes swap costs relative to margin very high, increasing the risk of a margin call.

( Opportunities from Swaps

Carry Trade: A classic strategy where traders borrow in low-interest currencies )like JPY or CHF( to buy high-interest currencies )like AUD or NZD(, earning positive swaps daily. For example, buying AUD/JPY, though exchange rate movements remain the main risk.

Swap-Free Accounts )Islamic Accounts: Many brokers offer special accounts that do not charge swaps, suitable for swing or position traders holding positions for weeks or months. However, these accounts may have wider spreads or fixed management fees.

Summary: Swaps and Trading Planning

Swaps are not random costs but result from the complex mechanisms of financial markets. Understanding what is a swap and how it works will help you make better trading decisions.

For Scalpers closing trades within minutes, swaps have little impact. But for Swing Traders or Position Traders holding for weeks or months, swaps can significantly affect profits or losses.

Choosing a broker transparent about fees and with clear swap information on the platform will enable you to accurately calculate costs and risks before trading.