Trade smarter with some of the most competitive swap rates in the forex trading industry. Benefit from transparent pricing on both overnight and long-term positions.
Trade smarter with some of the most competitive swap rates in the forex trading industry. Benefit from transparent pricing on both overnight and long-term positions.
** Please be informed that on some instruments the Triple Swap is charged on Friday so ensure you check the platform specification for your chosen instrument.
The net interest return that a trader accumulates on a currency position held overnight is referred to as a swap charge or rollover interest in forex trading. This fee is charged when the trader borrows one currency to buy another, as part of forex trading.
When you hold a position past the daily rollover time (typically 00:00 server time), you are subject to interest based on the central bank rates of the two currencies involved. For instance, if you are buying EUR/USD, you are effectively borrowing in US dollars to buy euros. In doing so, you pay interest on the borrowed US dollars and earn interest on the euros bought.
The net swap fee is calculated on the interest rate differential between the US dollar and the euro. If the rate differential is positive after fees are applied, the trader earns the difference. If the outcome is negative, the trader pays the cost.
Deposit and borrowing rates on the same currency usually differ. The borrowing rate is typically higher than the deposit rate. That is why forex swap rates for long and short positions on the same currency pair are different.
The gain or cost of holding a position overnight, referred to as swap or storage, depends on several factors, such as:
When traders open a long or short trading position, they commit to making the final payments on the ‘value date’. The settlement is carried out within two working days in the spot market. When the trading position remains open and is rolled over to the next day, the value date shifts to a day ahead.
The trade’s corresponding currency volume is borrowed and lent from the interbank market, subject to the current credit interest and deposit rates. The trading broker transfers the lending gains and borrowing costs to the trader.
There are two cases:
Swap charges are important for traders who want to open and hold on to long-term positions. This includes swing and position traders, hedging investors, those who trade highly volatile instruments, as well as individuals who trade on weekends and holidays. In addition, carry traders base their trading strategies on the interest rate differential between the two currencies, so swap fees are vital to their strategy execution.
Forex swaps are also crucial for hedging purposes. Suppose a trader opens a position, expecting a specific type of market movement that hasn’t begun yet. In that case, they may consider opening another position in the opposite direction without closing
the first one. This is called ‘lock mode hedging’. The low spread between the rates, which can be attributed to broker-defined swap rates, can help minimise the cost of maintaining such positions. Platforms like the MT4/MT5 allow the implementation of such hedging strategies.
It should be noted that swaps can change daily depending on market fluctuations, central bank interest rates, and broker policies. Swap calculations are done at the end of the day for positions that remain open after 5:00 p.m. ET. Traders who are not familiar with swap charges may face unexpected trading costs, so monitoring swap rates is advised to mitigate risks.
