A swap is the interest you pay or receive for holding a forex position overnight. When you keep a trade open past the daily rollover time, your broker either charges or credits your account based on the interest rate differential between the two currencies. Understanding swaps is essential for longer-term trading.
How Forex Swaps Work
Every currency has an interest rate set by its central bank. When you trade a currency pair, you're essentially:
- Buying one currency (borrowing to buy)
- Selling another currency (lending what you sell)
If you buy EUR/USD:
- You're buying Euros (earning Euro interest rate)
- You're selling US Dollars (paying US Dollar interest rate)
The swap is the difference between these rates, adjusted by your position size.
Positive vs. Negative Swaps
Positive Swap (You Earn)
When the currency you buy has a higher interest rate than the one you sell:
Example (hypothetical rates):
- Buy AUD/JPY
- AUD rate: 4.0%
- JPY rate: 0.1%
- You earn the difference (approximately)
Negative Swap (You Pay)
When the currency you sell has a higher interest rate:
Example:
- Sell AUD/JPY
- You're selling high-rate AUD
- You're buying low-rate JPY
- You pay the difference
When Swaps Are Charged
Swaps are applied daily at the rollover time, typically:
- 5:00 PM New York time (ET), which is 01:00 GST in summer and 02:00 GST in winter
- Also called the "rollover" or "swap point"
If your position is open at this time, swap is applied.
Triple Swap Wednesday
On Wednesday, brokers charge triple swap to account for the weekend:
- Forex trades settle in 2 days (T+2)
- Wednesday trade settles Friday
- Thursday trade settles Monday (skipping weekend)
- Wednesday swap covers Saturday + Sunday
So Wednesday night, you pay or receive 3 days' worth of swap.
Calculating Swap
Swap rates are usually quoted in points or pips per lot. Your actual charge depends on:
- Swap rate (from broker)
- Position size
- Number of nights held
Example:
- Swap rate: -5 points per lot (negative = you pay)
- Position: 2 standard lots
- Held: 3 nights
Swap cost = -5 × 2 × 3 = -30 pointsConvert points to your account currency for actual cost.
Where to Find Swap Rates
In Your Trading Platform
- MT4/MT5: Right-click on a pair → Specification
- Shows swap long and swap short rates
Broker Website
Most brokers publish swap rates tables, updated daily or weekly.
Factors Affecting Display
Rates shown may be in:
- Points (0.00001 for 5-digit pairs)
- Pips
- Actual currency amount
Check what unit your broker uses.
Swap Rates Table Example
| Pair | Swap Long | Swap Short |
|---|---|---|
| EUR/USD | -6.5 | +1.2 |
| GBP/USD | -3.8 | -1.5 |
| AUD/JPY | +4.2 | -8.1 |
| USD/JPY | +2.1 | -6.3 |
Rates are examples and change frequently
Swap-Free (Islamic) Accounts
Some brokers offer swap-free accounts for traders who cannot pay or receive interest for religious reasons:
Features:
- No overnight interest charges
- May have administration fees instead
- Position holding limits may apply
- Available at many major brokers
Considerations:
- Verify if truly swap-free or renamed fees
- Check for hidden costs
- Understand any restrictions
Trading Strategies and Swaps
Carry Trade Strategy
Deliberately trading to earn positive swap:
- Buy high-interest-rate currency
- Sell low-interest-rate currency
- Hold for extended periods
- Collect daily swap payments
Popular Carry Pairs:
- AUD/JPY, NZD/JPY (when rate differentials favor it)
Risks:
- Currency depreciation can exceed swap earnings
- Rate changes affect profitability
- Requires significant capital for meaningful returns
Day Trading
If you close positions before rollover time:
- No swap charged
- Avoid overnight costs entirely
- Focus purely on price movement
Swing Trading
Holding days to weeks:
- Swap becomes meaningful cost/benefit
- Factor into profit calculations
- Choose direction considering swap when possible
Minimizing Swap Costs
Trade in Swap Direction: When possible, align trades with positive swap.
Close Before Rollover: If day trading, close before 5 PM New York time (01:00 GST in summer, 02:00 in winter).
Avoid Wednesday Overnight: Triple swap makes Wednesday costly.
Use Swap-Free Accounts: If eligible and appropriate.
Check Broker Comparisons: Swap rates vary between brokers.
Key Takeaways
- Swaps are interest charges for holding positions overnight
- You pay or earn based on interest rate differentials
- Triple swap applies on Wednesday nights
- Swaps can be positive (earning) or negative (paying)
- Day traders can avoid swaps by closing before rollover
- Swap-free accounts exist for those who need them
What's Next?
Learn about ECN versus market maker brokers and how broker types affect your trading experience.
This article is for educational purposes only and does not constitute financial advice.