What is SWAP? Understanding Overnight Fees
⏱️ Estimated Reading Time: 4 minutes
📝 Summary: This guide explains the concept of Forex SWAP (rollover fees), detailing how it is calculated for long and short positions and how traders can either pay or earn interest.
A SWAP (also known as a rollover or overnight fee) is the interest you either pay or earn for holding a trading position open overnight. In Forex trading, you are simultaneously buying one currency and selling another, which means you are dealing with two different interest rates.
Table of Contents
Key Takeaways
- Interest Rates: SWAP is determined by the interest rate difference between the two currencies.
- Positive vs. Negative: You can earn money (positive swap) or pay money (negative swap).
- Overnight: Fees are applied if the position is held past the broker’s cutoff time (usually 5 PM NY).
- Triple Swap: On Wednesdays, triple swap is charged to account for the weekend.
1. Types of SWAP Transactions
The first recorded SWAP transaction occurred in 1981 between IBM and the World Bank. In modern Forex, we distinguish between:
- Spot: Immediate delivery of currency (standard trading).
- Forward: An agreement to exchange currency at a future date.
- Tom-Next (Tomorrow-Next Day): The mechanism brokers use to “roll over” your spot position to the next day without physical delivery, applying the SWAP adjustment.
2. How Are SWAP Points Calculated?
Each broker has its own SWAP rates, based on interbank rates plus their markup. To calculate the cost or profit, you need:
- Position size (Lots).
- SWAP points (Long or Short).
- Point value in the quote currency.
3. Calculation Example
Let’s assume we hold two positions (1 Lot each). Here is a hypothetical broker table:
| Pair | Swap Long | Swap Short |
|---|---|---|
| EUR/NZD | -0.99 | 0.90 |
| USD/CHF | 0.05 | -0.11 |
Example for EUR/NZD Short (1 Lot):
- Pip Value: 100,000 * 0.0001 = 10 NZD.
- Calculation: (10 NZD * 0.90 points) = 9 NZD daily profit.
- Conversion: Convert 9 NZD to your account currency (e.g., USD).
If you held a Long position, you would pay -0.99 points daily.
Check your broker’s swap rates.
Find brokers with positive carry trades and earn cashback on your volume.
Frequently Asked Questions
Why is Wednesday swap triple?
Forex is a T+2 settlement market. Trades opened on Wednesday settle on Friday. Since banks are closed on weekends, you pay interest for Friday, Saturday, and Sunday.
Is swap charged on demo accounts?
Yes, demo accounts simulate real market conditions, including swap charges, to give you a realistic view of trading costs.
Can I avoid swap fees?
Yes, by closing your trades before the market rollover time (usually 5:00 PM New York time) or by opening a Swap-Free (Islamic) account.
⚠️ Disclaimer: The content of this article is strictly for informational purposes and does not constitute investment advice. FXRebate is a cashback and affiliate service, not a broker or fund manager; responsibility for trades and funds lies exclusively with the third-party broker. Trading with leverage involves high risks of capital loss. Partner links used do not generate additional costs for you.
