Swap Fees Every Trader Should Know: From Basics to Applications

For traders in the market, the often-overlooked cost is the overnight position holding fee (Overnight Position Holding Fee) or what we call Swap. Many traders, especially beginners, are unaware of how Swap value can eat into profits. Understanding this mechanism will help you plan more effective strategies.

What is Swap and Why Does It Occur?

Swap is a fee that arises from holding a position overnight or beyond market close, also known as “Overnight Interest” and “Rollover Fee” in financial terminology. Simply put, it is the interest accumulated when you open an order and do not close it within the same day.

The core concept is Interest Rate Differential

Why does Swap have value? Because when you trade currency pairs like EUR/USD, you are “borrowing” one currency to “buy” another.

• If you Buy EUR/USD: You buy EUR (receive interest) and borrow USD (pay interest)
• If you Sell EUR/USD: You borrow EUR (pay interest) and buy USD (receive interest)

The difference between the interest on both sides is the essence of the Swap fee.

Example: If EUR has a policy rate of 4.0% per year and USD is 5.0% per year

• Buy EUR/USD: earns 4.0% but pays 5.0% = -1.0% per year (pay Swap)
• Sell EUR/USD: earns 5.0% but pays 4.0% = +1.0% per year (receive Swap)

In reality, trading platforms add their own management fee (Markup), so the Swap you receive or pay may differ from the theoretical calculation.

Types of Swap Traders Need to Know

Positive vs Negative Swap

• Positive Swap: The interest of the asset you buy is higher, so you receive money every night (even after deducting fees)
• Negative Swap: The interest of the asset you buy is lower, so you pay money every night (most common case)

Swap Long and Swap Short

• Swap Long: Swap rate for Buy orders
• Swap Short: Swap rate for Sell orders

These two rates are never the same because the platform applies a Markup on each side.

3-Day Swap: Hidden condition that beginner traders often miss

This is where traders need to be cautious: often, on one day of the week (usually Wednesday night), you will be charged a Swap up to 3 times.

Why?

Forex and CFD markets close on Saturday-Sunday, but interest in the financial world continues. Brokers must aggregate the Swap for Saturday and Sunday into one trading day (most often Wednesday night).

This is a technical reason: the Forex market has a settlement cycle (Settlement) at T+2. So, when you hold an order from Wednesday into Thursday, the settlement falls on Monday (skipping Saturday-Sunday).

How to Calculate Swap Costs Accurately

Method 1: If the platform shows Swap as a Percentage (%) per night

This is the simplest method:

Formula: Swap (in money) = Total position value × Swap rate %

Example:

• You Buy 1 Lot EUR/USD (1 Lot = 100,000 units) at 1.0900
• Total value = 100,000 × 1.0900 = 109,000 USD
• Swap Long rate = -0.008% per night
• Swap per night = 109,000 × (-0.008 / 100) = -8.72 USD
• If that night is a 3-Day Swap: (-8.72) × 3 = -26.16 USD

Key point: Swap is calculated from the “full value” (109,000 USD), not from the margin (Margin) you put up. If you leverage 1:100, you might only put up 1,090 USD but pay Swap of 8.72 USD = 0.8% of Margin per night. This is why Swap is a hidden cost that can be quite significant.

Method 2: If the platform shows Swap in Points

Formula: Swap (in money) = Swap rate in Points × value of 1 Point

Example:

• You Buy 1 Lot EUR/USD
• Swap Long = -8.5 Points
• For EUR/USD, 1 Lot: 1 Point = 1 USD
• Swap = (-8.5) × 1 = -8.5 USD per night

How to Check Swap Before Opening an Order

Before deciding to trade, you should check the Swap value:

1. Go to Market Watch (Asset list)
2. Right-click on the asset of interest
3. Select Specification (or Instrument Details
4. Look for “Swap Long” and “Swap Short”
5. The units may be Points or % depending on the platform

Risks Traders Need to Be Aware Of

) Unknowingly Eating Into Profits

A profit of 30 USD from price difference might be reduced to 4 USD after a 3-Day Swap deducts 26 USD. This makes a winning trade almost not worth it.

Pressure to Close Positions

In sideways markets, holding an order with negative Swap every day results in slow losses. Many traders cannot tolerate this and are forced to close their orders even if their plan was to hold longer.

Leverage Risks

Since Swap is calculated from full value, it can be a very high cost relative to the margin. The risk of margin calls increases significantly.

Opportunities Traders Can Use

Carry Trade Strategy

The idea is to “borrow” a low-interest currency ###like JPY, CHF( and “buy” a high-interest currency )like AUD, NZD, or sometimes switch currencies( to “collect” positive Swap daily.

Example: Open a Buy AUD/JPY to earn positive Swap.

But beware: AUD/JPY might fall sharply, resulting in exchange rate losses that outweigh accumulated Swap profits. Therefore, this strategy is suitable in stable market conditions.

) Swap-Free Account ###Islamic Account(

Many platforms offer Swap-Free accounts for those who want:

• No Swap charges regardless of how long they hold the order
• Suitable for Swing Traders and Position Traders holding orders for weeks or months
• Trade-off: possibly wider spreads or fixed fees if holding beyond a certain number of days

Summary

Swap is not just a small fee; it can have a significant impact on your profitability, depending on your trading style:

• Scalping/Day Trading traders: Little to no impact, as they close orders within the day
• Swing/Position traders: Need to choose a positive Swap direction or use Swap-Free accounts
• Carry Traders: Use Swap as part of their strategy

The key is to select a transparent platform that clearly displays Swap information before opening trades. This allows you to accurately calculate costs and avoid hidden charges surprising you later.