What is a swap and how much will it affect your trading profits?

Retail traders often evaluate trading costs only by spreads or commissions, but there’s another expense often overlooked: Swap — a hidden cost that can quietly eat into your profits, whether the market moves or not. Understanding swap is one way to plan your trades more accurately and avoid profits being eaten away.

What Is Swap Really?

Swap is a fee for holding a position overnight, also called “overnight interest” or “rollover fee.” Simply put, when you open a trade and hold it past market close, a swap fee is incurred.

Most traders think of swap as just an extra fee charged by brokers, but in reality, it’s more complex. The swap arises from deeper financial structures.

Why Is Swap Necessary?

When trading Forex like EUR/USD, you’re actually:

• Buying (Long): Buying EUR and borrowing USD to pay
• Selling (Short): Selling EUR (borrowing it) and buying USD back

Each currency has its own “policy” interest rate set by the central bank, such as:

• US Dollar (USD) controlled by the FED
• Euro (EUR) controlled by the ECB

So, when you “borrow” a currency, you pay interest on it, and when you “hold” a currency, you earn interest.

Simple example: Suppose EUR interest rate is 4.0% annually, USD is 5.0% annually.

• If you Buy EUR/USD: you earn EUR interest 4.0% but pay USD interest 5.0% → net difference = -1.0% → swap fee payable
• If you Sell EUR/USD: you pay EUR interest 4.0% but earn USD interest 5.0% → net difference = +1.0% → swap income

Why do you often pay swap in practice?

Theoretically, you might “receive” a positive swap, but in reality, brokers add a “management fee” into the rate. As a result:

• The swap you should receive (+1.0%) might be reduced to +0.2%
• Sometimes, both sides can be negative (long and short)

This is why Long Swap (for buy orders) and Short Swap (for sell orders) are usually not equal.

Types of Swap Traders Encounter

Positive vs Negative Swap

Positive Swap = You earn money in your account (interest received > paid)

Negative Swap = You pay money (interest paid > received) — this is most common

Long Swap vs Short Swap

Brokers specify swap rates separately:

• Long Swap: when you buy
• Short Swap: when you sell

They are almost never the same.

3-Day Swap (Triple Swap) — The confusing part

Many new traders miss this: besides daily swap, there’s a 3x fee on one day per week.

Why? Because Forex markets are closed on Saturday and Sunday, but interest continues to accrue. Brokers combine the swap for Saturday and Sunday into one calculation on a weekday.

Which day? Usually Wednesday night (due to T+2 settlement), but it varies by broker and asset.

How to check swap rates before trading

On MT4/MT5 (standard platforms)

1. Open Market Watch
2. Right-click the asset (e.g., EUR/USD)
3. Select Specification
4. Find “Swap Long” and “Swap Short”

Usually shown in points or as a percentage per year.

On Mitrade (modern platform)

1. Select the asset
2. Look at the right trading panel under “Introduction”
3. Find “Overnight Fee”
4. Mitrade shows it as a % per night, e.g., -0.015% per night

How to accurately calculate swap

Swap is based on the full position value, not just the margin. That’s why swap costs can be intimidating.

Method 1: When broker shows % per night (e.g., Mitrade)

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

Example:

• Buy 1 Lot EUR/USD = 100,000 units
• Price = 1.0900
• Swap Long = -0.008% per night

1. Total value = 100,000 × 1.0900 = 109,000 USD
2. Swap = 109,000 × (-0.008 / 100) = -8.72 USD

Meaning: You pay $8.72 per night (excluding 3-day swap).

Method 2: When broker shows points (e.g., MT4/MT5)

Formula: Swap (in USD) = (Swap rate in points) × (value of 1 point)

Example:

• Buy 1 Lot EUR/USD
• Swap Long = -8.5 points
• 1 pip (10 points) = $10 USD

1. 1 point = $1 USD
2. Swap = -8.5 × $1 = -8.5 USD per night

Common overlooked points

Swap is calculated from full position value, not just margin. For example:

• Using 1:100 leverage, opening 1 Lot EUR/USD requires about $1,090 margin
• But swap cost is $8.72 per night
• Relative to margin: (8.72 / 1,090) × 100 ≈ 0.8% per night

This hidden cost can gradually erode your margin even if the market moves sideways. If you hold positions for days or weeks, it can significantly impact profitability.

Opportunities from Swap — Carry Trade

Swap isn’t always a cost; it can be used to profit via Carry Trade strategies.

Basic idea

Open a Long position in a currency pair where Swap Long is positive, earning interest every night.

Example: Buy AUD/JPY

• AUD has high interest
• JPY has low interest
• If Swap Long is positive, you earn interest daily

Risks

The main risk is exchange rate movement. If AUD/JPY drops sharply, the loss from price movement can outweigh accumulated swap gains.

Swap-Free Accounts (Islamic Accounts)

If swap costs are prohibitive, you can opt for:

• Swap-Free or Islamic Accounts

Pros

• No swap charges regardless of holding period
• Suitable for swing or position traders

Cons

• Spreads may be wider
• Sometimes a fixed fee if holding beyond certain days

Swap for other assets (CFDs)

Swap isn’t exclusive to Forex:

• Stocks/Indices: based on interest rates of underlying currencies
• Commodities (gold, oil): rollover costs or futures contract rollovers
• Cryptocurrencies: based on funding rates, which can be highly volatile

Which traders should care about swap?

Scalpers (holding ≤5 min):

• Swap negligible, usually close position before rollover

Day traders (intraday):

• Usually close before market close, so swap has little impact

Swing traders (days/weeks):

• Swap can eat into profits, sometimes 10-30%

Position traders (months/years):

• Must consider swap seriously; it can influence trading decisions or require swap-free accounts

Checklist before trading

1. ✅ Check Swap Long and Swap Short for your asset
2. ✅ Calculate swap per night in USD and compare to your margin
3. ✅ If swap is negative, estimate how many days you can hold before margin drops significantly
4. ✅ Check when 3-day swap applies
5. ✅ Decide if you accept this swap, find alternative pairs, or choose swap-free accounts

Summary

Swap is a hidden cost often overlooked but has real impact on your trading profits. It’s not always true that “winning trades = profit,” because swap can offset gains.

Key points:

• For short-term trading, swap is usually negligible
• For long-term positions, swap is a major factor

Choosing brokers that clearly display swap rates, like Mitrade, helps you plan better and avoid hidden costs eating into your profits. Always be aware of this cost to trade more effectively.

Investing involves risks and may not be suitable for everyone.