Swap is an hidden cost that most traders tend to overlook

When you hold a position overnight, you have to pay Swap — which is the interest for borrowing money. This variable is the Interest Rate Differential between the two currencies you are trading.

Let's look at a simple example: if you Buy EUR/USD, you are "buying" EUR (interest rate 4.0%) and "borrowing" USD (interest rate 5.0%). The difference is -1.0% per year, which means you have to pay Swap every night.

But what makes it more interesting is that brokers add their own markup. So even though theoretically you should receive money, you might end up paying instead.

For Swap Long and Swap Short — these values are not the same because the broker's markup differs.

How to view Swap values depends on the platform you use. In MT4/MT5, go to Market Watch, right-click, select Specification, and look for Swap Long/Short. Other platforms usually display it as a percentage per night, which makes calculation easier.

There are two ways to calculate Swap: if the broker provides it in Points, use the formula: Swap = (Points) × (Value of 1 Point). For example, Buy 1 Lot EUR/USD with Swap Long -8.5 Points = -8.5 USD per night.

If provided as a percentage, use the formula: Swap = (Position Value) × (Swap Rate). For example, Buy 1 Lot EUR/USD at 1.0900 with Swap -0.008% = approximately -8.72 USD per night.

The key point is that Swap is calculated based on the full value of the position, not the Margin you put up. If you leverage 1:100 and put up a Margin of 1,090 USD, but the Swap is 8.72 USD per night, that’s 0.8% of your Margin per night. This is why Swap can be a significant cost.

There is a special day called the 3-Day Swap — normally, Swap is calculated once per day, but on one day of the week (mostly Wednesday night), you will be charged 3 times the Swap because the Forex market is closed on Saturday-Sunday, but interest still accrues. So, the broker consolidates the charges for all three days.

The risk of Swap is clear — it eats into your profits. You might trade with a profit of 30 USD, but if you hold for 3 nights and are hit with a 3-Day Swap of -26 USD, your profit drops to only 4 USD.

But Swap also creates opportunities — the Carry Trade strategy involves buying currency pairs that offer positive Swap to earn Swap daily. For example, Buy AUD/JPY (buying Australian dollar, borrowing Japanese yen) to receive positive Swap.

Another option is Swap-Free or Islamic accounts, which do not charge Swap regardless of how long you hold the order. These are suitable for Position Traders who hold positions for months.

In summary, Swap is not a small fee; it’s a cost that significantly impacts Swing Traders and Position Traders. You must choose a broker that is transparent about fees and clearly displays Swap information so you can plan your trades carefully.