Yesterday, my friend told me he made a profit from trading, but when I checked his actual account, the profit was gone. So I asked him, "What happened?" He replied, "Swap." That was the first time I learned how swap fees are calculated. It can have such a significant impact on our profits.

Swap fees are not as complicated as you might think, but most beginner traders tend to overlook them because they don't pay attention when opening orders. And when holding trades overnight, nothing seems obvious—the costs just quietly accrue.

Simply put, swap is the interest you pay (or sometimes receive) when holding a position overnight. When you trade, you're "borrowing" one currency to "buy" another. Every currency in the world has its own interest rate. Central banks set these rates: USD has rates determined by the Fed, EUR by the ECB, and so on. When you borrow a currency, you pay interest; when you hold onto a currency, you should earn interest. The difference between these two is what we call swap.

Let's look at an example. If the interest rate for EUR is 4% per year and USD is 5% per year, when you buy EUR/USD (buy EUR, borrow USD), you earn 4% but pay 5%. The difference is -1%, meaning you pay a negative swap. Conversely, if you sell EUR/USD (borrow EUR, hold USD), you pay 4% but earn 5%, so the difference is +1%, and you get a positive swap.

But this is just in theory. In reality, brokers act as middlemen. They add their "handling fee," which makes the actual swap you receive less than it should be. Often, both long and short positions incur costs.

This is why understanding how swap is calculated is crucial because it truly affects our profits. I once traded with a $30 profit, but after holding the position for three nights—considering the 3-Day Swap (where Wednesday counts as three days)—the swap fee was -$26. The net profit was only $4, not including the spread when opening the order.

There are two ways to calculate it. If your broker shows swap in points (like MT4/MT5), multiply the points by the value of one point. If they show it as a percentage per night (like Mitrade), multiply the full position size by that percentage. Importantly, swap is calculated based on the full position value, not the margin you put up.

For example, if you buy 1 lot of EUR/USD at 1.0900 with 1:100 leverage, you might only need to put up $1,090 in margin, but the full position size is $109,000. If the swap for long positions is -0.008% per night, you'll lose $8.72 per night—that's about 0.8% of your margin. If the market stays flat, this swap fee can gradually eat away at your margin until it's gone.

Therefore, choosing a broker that clearly displays swap information is important. Some traders opt for Swap-Free (Islamic) accounts, which don't charge swap regardless of how long they hold the position. This is ideal for those who want to hold trades for weeks or months.

Some traders use a carry trade strategy, intentionally earning positive swap daily by borrowing low-interest currencies (like JPY) to buy high-interest currencies (like AUD). If you buy AUD/JPY and it has a positive swap, you'll earn money every night. But the risk is, if AUD/JPY drops sharply, the exchange rate loss could outweigh the accumulated swap profits over the years.

In summary, no matter what kind of trading you do, you need to understand how swap is calculated. It helps you plan your trades better and avoid hidden costs eating into your profits unknowingly. This is what my friend should have known from the start.