Swapping is - the hidden cost that traders need to understand deeply

2026-01-05 19:08:15

When trading in the market, Spread and Commission are not the only costs involved. There is another expense that most beginner traders tend to overlook, which is Swap or in technical terms called “Overnight Interest.” Understanding what swapping is and how to calculate it will help you better control your actual costs and prevent profits from being eaten away unknowingly.

What is Swapping - The Reality Behind

Swap is the fee for holding a position overnight. When you open an order and do not close it before the end of the day, you will need to pay this Swap fee.

In the Forex market, swapping results from the interest rate differential between two currencies. When you trade a currency pair, such as EUR/USD, you are effectively “borrowing” one currency to “buy” the other:

Buy EUR/USD: You buy EUR (high interest rate) and borrow USD (low interest rate) - pay USD interest but earn EUR interest
Sell EUR/USD: You borrow EUR and buy USD - pay EUR interest but earn USD interest

The interest rate difference between these two sides is the swapping, which is the actual cost plus broker handling fees.

Why Swap Rates Are Not the Same for Long and Short

Often, Swap Long and Swap Short are not equal; they are higher/lower than usual because brokers add their own markup.

Although theoretically, you should receive a positive Swap, after broker fees are deducted, swapping may result in small numbers or even become negative on both sides. Always check the actual figures before trading.

Swapping in Assets Other Than Forex

The concept of swapping applies to other assets as well:

Stocks and Indices: Swap usually based on the interest rates of the currencies in which the assets are traded.

Commodities: More complex, may depend on storage costs or rollover of futures contracts.

Cryptocurrencies: Swapping is a significant type, often based on the Funding Rate in Exchange markets, which can be highly volatile.

Types of Swap You Will Encounter

Positive Swap: Negative fees are waived - you receive money into your portfolio. This occurs when the asset you buy offers higher interest than the borrowed one.

Negative Swap: You pay every night. This is the most common situation, occurring when the asset you buy offers lower interest or broker fees include a spread markup.

3-Day Swap (Triple Swap): Important day to watch out for - normally, Swap is calculated once per day, but there is one day in the week (mostly Wednesday) that is charged 3 times because the Forex market is closed on Saturday-Sunday but interest continues. Brokers consolidate 3 days into a single trading day.

How to Find Swap Rates Before Trading

On MT4/MT5 platforms:

Go to Market Watch
Right-click on the asset (such as EUR/USD)
Select Specification
Find the lines Swap Long and Swap Short
The numbers are usually in Points; need to convert accordingly

On other platforms: Most display Swap as a % per night, which is easier to calculate.

How to Calculate Swap Costs Accurately

Method 1: Calculating from Points

Swap in money = (Swap Rate in Points) × (Value of 1 Point)

Example: Buy 1 Lot EUR/USD, Swap Long = -8.5 Points

1 Lot EUR/USD, 1 Pip ($10) = 10 Points ($1)
(-8.5 Points) × ()per Point( = -8.5 USD per night
If on Wednesday $1 3x): -8.5 × 3 = -25.5 USD

( Method 2: Calculating from Percentage )% per night###

Swap in money = (Total position value) × (Swap rate %)

Example: Buy 1 Lot EUR/USD at 1.0900, Swap Long = -0.008%

Total value: 1 × 100,000 × 1.0900 = 109,000 USD
Swap: 109,000 × (-0.008 / 100) = -8.72 USD per night
If on 3 nights: -8.72 × 3 = -26.16 USD

Important: Swap is calculated from the full value, not the Margin amount. If using 1:100 leverage and placing a Margin of 1,090 USD, the Swap of 8.72 USD is 0.8% of Margin per night — a significant amount relative to your capital.

Opportunities and Risks from Swap

( Risks

Eroding profits: You might make a profit of 30 USD but lose 26 USD to Swap over 3 days — net profit only 4 USD.

Leverage risk: Since Swap is based on full value, Margin Call risk increases in unfavorable markets.

Forced position closing: Negative Swap every day in sideways markets can force you to close positions due to margin pressure.

) Opportunities

Carry Trade Strategy: Borrow low-interest currency (like JPY) to buy high-interest currency ###like AUD###, earning positive Swap daily — suitable in stable markets. But exchange rates may move against the position.

Swap-Free Accounts (Islamic Accounts): No Swap charges regardless of holding duration — suitable for Swing Traders holding for weeks or months. Brokers may compensate with wider spreads.

Summary - Use Swap as a Tool, Not Just a Cost

For Scalpers, Swap has little effect as they open and close within minutes. For Position Traders holding for months, Swap can significantly eat into profits or generate additional income if used correctly in Carry Trades.

Swapping is a crucial part of the real trading cost. Planning with Swap in mind from the start helps improve your returns and avoid hidden surprises. Choosing a platform that transparently displays Swap information is the first step in good risk management.

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