Swap: The Hidden Cost That Traders Need to Understand

When Does Swap Demand Become a Problem?

For traders in the global market, concerns usually focus on Spread and Commission. But there’s another silent cost that can quietly erode profits—that is, Swap (Overnight Interest).

Many traders find it difficult to discover this issue because it’s hidden within the platform’s details. Only when you open an order and hold it overnight do you see this number displayed alongside your order screen.

The Origin of Swap: Why Does It Exist?

Swap is not a fee arbitrarily set by the trading service provider. It is rooted in the real world of finance.

When you trade currency pairs (such as GBP/USD), you are essentially entering into a borrowing-lending contract:

• When opening a Buy order: You buy the base currency (GBP) by borrowing the quote currency (USD)
• When opening a Sell order: You sell the base currency (GBP) and receive the quote currency (USD)

Each currency has its own interest rate set by its central bank:

• US Dollar (USD): set by the Federal Reserve
• Pound Sterling (GBP): set by the Bank of England
• Euro (EUR): set by the ECB

This difference is called Swap—the difference between the interest rates of the currency you borrow and the currency you hold.

Basic Calculation Example

If GBP has an interest rate of 5.25% per year and USD has 5.50% per year:

• Buy GBP/USD (borrowing USD): you must pay 5.50% but receive 5.25% = a negative spread (Negative Swap)
• Sell GBP/USD (borrowing GBP): you must pay 5.25% but receive 5.50% = a positive spread (Positive Swap)

Why Do Most of Us Lose?

Trading service providers act as intermediaries. They have to pay interest to banks to borrow money, so they add a markup (Markup) to the swap rate.

As a result, even if the “actual” rate might be positive, after deducting management fees, the rate you receive could be lower or even negative on both sides (Long and Short).

This is why Swap Long and Swap Short are not equal.

Swap for Other Assets

This concept extends to CFDs as well:

• Stocks and Indices: Swap depends on the interest rates of the currencies traded plus the provider’s maintenance costs
• Commodities: Includes storage costs (Storage) and rollover of futures contracts
• Cryptocurrencies: Based on the market’s Funding Rate, which can be highly volatile

Types of Swap

Positive Swap (

You receive money into your account every night you hold the position, occurring when the interest rate of the asset you hold is significantly higher than that of the borrowed asset.

) Negative Swap ### You pay money out of your account every night. The most common situation occurs when the interest rate of the asset held is lower or even higher but not enough to cover the management fee.

( Triple Swap ) This is where beginner traders often get confused. Usually, swaps are calculated once per day, but there is one day in the week when the swap is calculated at 3 times the normal rate.

Why? Because the Forex and CFD markets are closed on Saturday-Sunday, but interest continues to accrue in the financial world every day. Providers must accumulate the interest for Saturday-Sunday and include it in the weekday calculation.

Typically on Wednesday ###but policies vary among providers(.

How to View Swap Rates

) For Standard Platforms (MT4/MT5)

1. Open the Market Watch window
2. Right-click on the asset
3. Select Specification
4. Look for the “Swap Long” and “Swap Short” lines
5. The numbers are in Points; you need to convert them

For Modern Trading Platforms

Newer brokers often display swap information as percentage per night, which is more convenient.

When selecting an asset, you will see swap info (such as -0.012% per night) clearly displayed.

Detailed Swap Cost Calculation

Method 1: Calculating from Points

Formula: Swap (in money) = ###Swap Rate in Points( × )Value of 1 Point(

Example:

• You trade Buy 1 Lot USD/JPY
• Swap Long = -12 Points
• For USD/JPY, 1 Lot, 1 Pip )10 Points( = 1,000 JPY ≈ )USD(
• Therefore, 1 Point = $0.7 USD
• Swap = )-12 Points$7 × ($0.7) = -$8.4 USD per night
• On Wednesday, with a 3-Day Swap: -$8.4 × 3 = -$25.2 USD

( Method 2: Calculating from Percentage per Night

Formula: Swap )in money### = (Total Position Value) × (Swap Rate %)

Example:

• You trade Buy 2 Lots EUR/GBP (2 × 100,000 = 200,000 units)
• Current EUR/GBP price = 0.8650
• Total position value = 200,000 × 0.8650 = 173,000 GBP ≈ 200,000 EUR
• Swap for Buy = -0.010% per night
• Swap = 200,000 × (-0.010 / 100) = -20 EUR per night
• Wednesday: -20 EUR × 3 = -60 EUR

Key Point: Swap is calculated based on the “full value” of the position, not the margin (Margin).

If using 1:50 leverage and only depositing 4,000 EUR margin, but swap is calculated on the full position value of 200,000 EUR, losing 20 EUR in one night is 0.5% of your margin.

Strategies to Benefit from Swap

( Carry Trade Strategy ) Some traders leverage positive swaps intentionally:

• Choose currency pairs with positive Swap Long
• Open Buy orders and hold for a long time
• Collect swap payments daily

Example: Long-term Buy AUD/JPY ###Australian Dollar = high interest, Japanese Yen = low interest(

Risk: Exchange rates can move significantly against you. Losses from price movement can outweigh the swap gains over years.

) Swap-Free Accounts ### An option for Swing Traders and Position Traders who want to hold positions long-term:

• No swap charges regardless of how long you hold
• Usually have wider spreads or management fees if held beyond a certain period

Impact on Different Trading Styles

Day Trading: No impact (Open-Close within a few hours)

Swing Trading: Moderate impact (Hold 3-7 days)—swap costs must be included

Position Trading: Very high impact (Hold for weeks or months)—must choose assets with positive swap or use swap-free accounts

Summary

Swap is not a random fee but has a clear financial basis. Understanding and accurately calculating swap can help you:

• Plan your trades more precisely
• Choose suitable strategies
• Avoid hidden costs that could deplete your account

Selecting a transparent provider that clearly displays swap information on their platform will make your trading decisions more secure from the start.