Swap

When you hold a leveraged forex position overnight, you are effectively borrowing one currency to hold another. The swap (also called rollover, overnight financing or the overnight fee) reflects the interest rate differential between the two, plus a mark-up charged by the broker.

• If the currency you are long pays a noticeably higher interest rate than the one you are short, you may receive a credit.
• If it pays less, you pay a charge.
• Because of the broker's mark-up, both sides of a pair are often negative.

Swaps are applied at the daily rollover, around 17:00 New York time. For forex, most brokers apply three days' swap on Wednesday night to cover the weekend.

Example

Illustrative figures: a broker lists swap on a pair as minus 7.20 dollars (long) and plus 1.80 dollars (short) per standard lot per night. Holding 2 lots long from Monday to the following Monday (five rollovers, one of them triple, so seven nights' worth) costs 2 times 7 times 7.20 = 100.80 dollars. Holding the same position short would earn 2 times 7 times 1.80 = 25.20 dollars, assuming the rates did not change.

Swaps can be quoted in points, money per lot or an annual percentage, depending on the platform. MetaTrader's "Specification" window shows the broker's current rates.

Common misconception

Positive swaps are sometimes marketed as income. They change when interest rates change, the broker can adjust its mark-up at any time, and any credit is small next to the price risk of holding the position. Swap is a cost or credit to factor in, not a reason to trade.

See swap and overnight financing. Traders who cannot pay or receive interest for religious reasons may use a swap-free account.