Swap or overnight fees, also known as rollover fees, are charges or credits applied to trading positions held open overnight. These fees are essentially the interest rate differential between the two currencies in a currency pair, adjusted for the broker's own charges or credits. They are a fundamental aspect of leveraged trading, particularly in Forex and CFD (Contract for Difference) markets.
When you hold a leveraged position overnight, you are essentially borrowing one currency to buy another. The swap fee reflects the cost of borrowing that currency.
Positive Swap (Credit): If the interest rate of the currency you bought is higher than the interest rate of the currency you sold, you may receive a credit.
Negative Swap (Charge): If the interest rate of the currency you bought is lower than the interest rate of the currency you sold, you will incur a charge.
Swap fees are usually calculated based on the notional value of the position and the number of days the position is held open overnight. They are typically applied at a specific time each trading day, usually at the end of the trading day in New York.
Let's consider a hypothetical example with the EUR/USD currency pair.
Assume the following:
Current Date: Sunday, 29 June 2025
Broker's Swap Time: 5:00 PM EST (New York time)
Interest Rate for EUR: 0.5%
Interest Rate for USD: 2.0%
Broker's Markup/Commission: 0.2%
Scenario 1: Buying EUR/USD (Long Position)
You buy 1 standard lot (100,000 units) of EUR/USD.
You are buying EUR and selling USD.
The interest rate on EUR (0.5%) is lower than the interest rate on USD (2.0%).
Therefore, you are paying a higher interest rate on the currency you sold (USD) than you are earning on the currency you bought (EUR). This will result in a negative swap (charge).
Calculation (Simplified for illustrative purposes):
Interest Rate Differential: 0.5% (EUR) - 2.0% (USD) = -1.5%
Adjusted for Broker Markup: -1.5% - 0.2% (broker charge) = -1.7%
Daily Swap Calculation:
(100,000 units * -1.7% / 360 days) = Approximately -$4.72 per day
So, if you hold this position overnight, you would be charged approximately $4.72.
Scenario 2: Selling EUR/USD (Short Position)
You sell 1 standard lot (100,000 units) of EUR/USD.
You are selling EUR and buying USD.
The interest rate on USD (2.0%) is higher than the interest rate on EUR (0.5%).
Therefore, you are earning a higher interest rate on the currency you bought (USD) than you are paying on the currency you sold (EUR). This could result in a positive swap (credit), depending on the broker's markup.
Calculation (Simplified for illustrative purposes):
Interest Rate Differential: 2.0% (USD) - 0.5% (EUR) = 1.5%
Adjusted for Broker Markup: 1.5% - 0.2% (broker charge) = 1.3%
Daily Swap Calculation:
(100,000 units * 1.3% / 360 days) = Approximately $3.61 per day
In this case, if you hold the position overnight, you might receive a credit of approximately $3.61.
Important Considerations:
Triple Swap: On Wednesdays, brokers often charge or credit three days' worth of swap fees to account for the weekend. This is because most financial institutions close on weekends, but the interest still accrues.
Broker Specifics: Swap rates vary significantly between brokers. It's crucial to check your broker's specific swap rates and policies for each currency pair and instrument you trade.
Market Conditions: Interest rates are dynamic and can change, impacting swap fees over time.
Trading Strategy: For day traders who close all positions before the end of the trading day, swap fees are not a concern. However, for swing traders or position traders who hold trades for multiple days or weeks, swap fees can significantly impact overall profitability.