I just realized that many new traders are often surprised by the fees deducted from their accounts when holding positions overnight. That is called swap — a concept that anyone trading forex must understand clearly.

What is swap? Simply put, it is the interest rate you have to pay or receive when holding a currency pair overnight. Why does this happen? Because in forex trading, you are essentially borrowing one currency to buy another, and these two currencies have different interest rates. The difference is the swap.

I usually divide swaps into two types: positive swap (you receive money) and negative swap (you pay money). When trading EUR/USD and the EUR interest rate is higher than USD, you will earn a positive swap. But if you sell GBP/JPY and the GBP interest rate is lower than JPY, you will incur a negative swap.

The calculation of swap is quite simple: take the trade size, multiply it by the interest rate difference between the two currencies, then add the broker’s commission. Different brokers calculate swaps differently, so you need to pay attention to this.

One interesting point is that swaps are applied daily, usually at 5 p.m. New York time. But on Wednesdays, brokers often triple the swap fee to account for the weekend rollover, so I usually try to close positions before that.

If you don’t want to worry about what swap is or these fees, some brokers offer swap-free accounts (Islamic Accounts). Or simply choose currency pairs with positive interest rate differentials, so you can trade and earn extra income from swaps.

The important thing is to understand how swaps affect your profits. For long-term positions, positive swaps can significantly increase returns, but negative swaps can eat into your profits. Therefore, planning around swaps is an important part of managing trading costs.