What is Swap in Forex?

Swap (or swap charges) in forex trading are the overnight/ rollover fees you “pay” or “earn” for keeping a position open overnight. It happens because every forex trade involves two currencies with two different interest rates. When you buy one currency, you are, in a way, borrowing the other one.

For more clarity, let’s see how it works:

• If the interest rate of the currency you bought is higher than the one you sold, you will “earn” a swap.
• If the interest rate of the currency you bought is lower than the one you sold, you will “pay” a swap.

In most cases, the broker calculates the swap charge based on the interest rate differential + their own markup. Some important points you must be aware of are:

• Negative vs Positive Swap: Most of the time you pay swap (negative), but in some pairs you can earn it (positive).
• No Swap for Intraday: If you close your trade on the same day, there is no swap charge.
• Swap-Free Accounts: Some brokers may also offer swap-free accounts where there is no overnight swap.

Furthermore, realise that a swap is not the same as the spread. The spread is the difference between the bid and ask prices when trading, while the swap relates to the financing or rollover of a position held beyond the broker’s daily cutoff.

Note: Some brokers may use different terminology for swap charges, such as overnight financing, rollover, or swap fee. The applicable rates and rollover rules may also vary by broker and currency pair.

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