Swap is an interest charged daily on orders left open overnight until the order is eventually closed. The application of swap varies, with it being either standard, triple or not applied at all, depending on the specific day and trading instrument.
What is Swap and Why it is charged for keeping a position overnight?
Swap is like a tiny interest fee applied if your position remains open and will be rolled over to the next trading day. Since the forex market operates 24 hours a day, positions held overnight may result in the trader either earning or paying interest, depending on the interest rate differentials. Swap charges compensate for the opportunity cost incurred by holding a position beyond the close of the trading day. SWAP rates are influenced by several key factors:
- Central banks' interest rates
- Exchange rate
- Order type (sell or buy)
Swaps are calculated on the second day after the deal.
Swap rates and schedule
Swap rates vary across trading instruments based on specific criteria. For instance, stocks and indices typically have no swap charges. Swap in forex trading can either be deducted from or added to your account, depending on the direction and type of your trades, as well as the prevailing swap rates. Check the SWAP rates for each instrument on the Contact Specifications page.
Triple Swap
Triple swap, also known as triple rollover, is a specific condition where the normal swap rate is applied threefold. It is charged on positions held over the weekend, covering the period from Friday to Monday.
The reason for the triple swap being charged is rooted in the settlement cycle of forex trades. In the forex market, trades settle in two working days, commonly referred to as T+2. If a position is held over the weekend, it extends beyond the standard settlement period. To account for the additional days the position is maintained overnight during the weekend, a triple swap is applied to compensate for the three days of interest.
To know the triple SWAP date for the instrument, you can check the Contract Specifications in Meta Trader. You can check the article on how to do it Navigating Contract Specifications on MetaTrader, WebTrader and FXTM Trading app.
How to Calculate Swap?
Swap formula for Currency pairs, Spot metals:
Pip value x Number of lots x Swap rate x Number of nights
Swap formula for Commodities, Indices:
Number of lots x Swap rate x Number of nights
For Example: If you open a SELL (short) position of 1 lot of GBP/USD pair and hold it for 5 days, the SWAP will be calculated as follows:
$10 x 4 x (-0.35) x 4 = -$56 in SWAP charges
Where:
- Lots = 1
- Pip value = 10
- Swap rate = -0.35pips
- Number of days: 4
You can check PIP values on our Contact Specifications page. But you can also calculate PIP yourself, knowing the currency pair, the location of the pip in the price quote, and the lot size being traded. Learn how to calculate PIP in the How do I calculate the value of a pip? article.