Swap and Overnight Financing Explained

Holding a position has a running cost

Spread and commission are paid once, when a position opens and closes. Swap is different: it is applied every night a position stays open, and for a trade held for weeks it can end up larger than the cost of entering it. Most traders discover this on a statement rather than in advance, because nothing on the order ticket announces it.

Where the number comes from

A spot forex position is an agreement to exchange two currencies. Left alone, it would settle in two business days, so a broker rolls it forward each night by closing and reopening it at an adjusted price. The adjustment reflects the interest rate difference between the two currencies over one day, plus the firm's own markup.

Because it is a difference, the sign depends on direction. Holding the higher-yielding currency long against a lower-yielding one can earn a credit; the opposite position pays. The markup means both sides of the same pair are often charged, and it also means the rate you see is the broker's number rather than the interbank one.

The three-day rollover

Settlement follows business days, so a position held through the day whose settlement lands over the weekend is charged three days at once. On most instruments this falls on Wednesday. It is not an extra fee, only the weekend arriving early — but a strategy that looks marginal on a one-day swap can be clearly negative once the triple night is counted in.

Where to find the rate before you trade

Swap rates are published per instrument in the platform's contract specification and are quoted in points or in account currency per lot, per night, separately for long and short. They are not fixed: firms revise them as underlying rates move, and most agreements allow revision without individual notice. The specification is the current number, not a promise about next month.

Islamic accounts are a different arrangement

Swap-free accounts exist for clients who cannot pay or receive interest. They do not remove the cost of financing a position; they replace it with an administration fee, a wider spread, or a limit on how long a position can be held free. Which of those applies is set out in the account terms and is worth reading before assuming the cost has gone.

What swap does not tell you

A positive swap is not income and does not make a position safer. The credit is small next to the exchange-rate movement it sits inside, and a currency offering a high interest differential is usually offering it because holding it carries risk the market is being paid to take. Financing is one line in the cost of a trade, and this article describes how it is calculated — not a reason to take one.