📖 Forex Swap: What It Is and How It Affects Trades
A Forex swap is the daily interest adjustment applied to an open position when it’s held overnight. It can be a debit (a cost) or a credit (income). Understanding swaps helps beginners avoid “unexpected” charges and plan holds deliberately.
Goal of the article: explain in plain language what a swap is and where it comes from, show basic calculation formulas, work through examples (including the triple swap), compare swaps with the spread, commission, and margin, and provide practical tips and answers to common questions.
What is a Forex swap?
A swap is the fee or reward for carrying an open position into the next trading day. It reflects the interest‑rate differential between the two currencies in the pair and applies only if the position remains open at the time of the rollover.
In short: when you buy one currency by selling another, you “borrow” the lower‑yielding currency and “deposit” the higher‑yielding one. The rate differential produces the swap—sometimes positive (a credit), sometimes negative (a charge).
How rollover and the triple swap work
Rollover is a service operation at the end of the trading day that shifts a trade’s settlement date. At that moment the swap for the prior day is credited or charged on all open positions.
- When it’s applied: once per day at the time set by your broker (usually around midnight server time).
- Swap direction: may be positive (credit) or negative (debit) depending on the trade direction and the rate differential.
- Triple swap: once a week the swap is applied at 3× the daily amount to account for weekends (the exact day depends on the instrument and broker; for most FX pairs it’s the night from Wednesday to Thursday).
Important: if you don’t carry positions overnight (scalping, day trading), there are no swaps. As soon as a position passes the rollover, a swap is applied. The triple swap is especially noticeable on larger sizes.
Terms & notations: mini‑glossary
Lot: standard trade size in Forex. For major pairs 1 lot = 100,000 units of the base currency. E.g., for EUR/USD the base currency is the euro. Pip: the minimum price increment (typically 0.0001 for pairs with 5 decimals and 0.01 for yen pairs). Don’t confuse with a “point”—on some platforms it equals 0.1 pip. Swap long / Swap short: swap values for long (buy) and short (sell) positions; they can differ significantly. Rollover: shifting a trade’s settlement date to the next day. That’s when the swap is applied. Triple swap: a three‑day swap charged once a week to account for weekends.
Swap calculation formulas: 3 practical methods
Brokers display swaps differently: as annual percent, in pips/points, or directly in your account currency. Below are equivalent ways to convert them.
Via the interest‑rate differential (theoretical core)
Core idea: the swap is the daily fraction of the annual rate differential multiplied by the position notional.Formula: Swap = V × (Rbase − Rquote) / N, where V is the notional (in the quote currency), R are annual rates, and N is days in a year (360/365).
- If the result is > 0 the swap is credited (income); if < 0 it’s charged (expense).
- For short positions it’s often easier to mentally swap the “bought” and “sold” currencies to keep the signs straight.
If the swap is quoted in points/pips per 1 lot
Formula: Swap (money) = Swappts × PipValue × Number_of_lots.
- Pip value depends on the instrument and size. For EUR/USD, 1 lot ≈ $10 per 1 pip (0.0001). For JPY pairs it’s ~ ¥1000 per 1 pip (the $ equivalent depends on the rate).
- Check with your broker: “point” may mean 0.1 pip—don’t mix them up.
If the swap is quoted directly in money per 1 lot
Formula: Swap (total) = Swapper lot × Number_of_lots. No conversion needed—just account for the triple swap on the relevant day.
Tip: in the instrument specification your broker usually shows both Swap long and Swap short. Focus on the one matching your direction: Buy and Sell figures often differ significantly.
How to calculate a swap yourself: step by step
- Open the instrument specification (in your terminal or on the broker’s site) and find Swap long/Swap short.
- Check the format: pips/points, annual %, daily %, or money.
- Determine your position size (in lots) and the pip value for the pair (if the swap is in pips).
- Apply the corresponding formula (see the section above).
- If you plan to hold across the “triple” day—multiply the daily swap by 3 for that date.
- Sum the swaps over the full holding period to gauge the impact on P&L.
- Record your assumptions (N=360/365, “point”=0.1 pip, etc.) so you don’t get confused next time.
Swap calculation examples
Let’s examine a few scenarios: long and short positions, USD and JPY pairs, a calculation with a triple swap, and an example with a “swap in pips.”
Example 1: long EUR/USD (Buy), swap in money
Suppose your broker quotes Swap long for EUR/USD at −$1.40 per 1 lot per day. You bought 1 lot and held the position for 5 nights without a triple swap. Total swap: 5 × (−$1.40) = −$7.00. This will reduce your final profit (or increase your loss) by 7 dollars.Bottom line: even a small negative swap over a short period can “eat” part of the profit. Plan your targets with accumulation in mind.
Example 2: short USD/JPY (Sell), swap from rates
You sell 1 lot of USD/JPY (notional $100,000). Assume the annual USD rate exceeds the JPY rate by 1.5 percentage points. Then the daily swap ≈ 100,000 × (−1.5%) / 360 ≈ −$4.17. Over 7 nights that’s ≈ −$29.2.Bottom line: your direction relative to the “high‑rate”/“low‑rate” currency is critical. Selling the higher‑rate currency against a lower‑rate one usually results in a negative swap.
Example 3: triple swap on GBP/USD
Suppose Swap long = −$1 per 1 lot/day. You hold 2 lots from Tuesday to Thursday. Night “Tue→Wed”: −$2; night “Wed→Thu” (triple): −$6; total −$8. If you planned to hold over the weekend—account for the triple charge.Bottom line: the triple swap makes holding before weekends noticeably more expensive; on large sizes this can affect your decision to stay in the trade.
Example 4: swap quoted in pips
Given: for EUR/USD Swap long = −1.2 pips per 1 lot/day. On EUR/USD 1 pip ≈ $10 per 1 lot. Then the daily swap = −1.2 × $10 = −$12. For 0.3 lot — −$3.6/day. For 10 nights — −$36.Bottom line: when the swap is given in pips, just multiply by the pip value and your size. Watch whether your broker uses “points” (0.1 pip).
Example 5: positive swap (carry‑trade element)
Pair X/Y: the X rate exceeds Y by 3.0 percentage points. Buying X/Y with 1 lot gives a theoretical daily swap ≈ Notional × 3.0% / 360. If the notional (in the quote currency) is equivalent to $100,000, the swap ≈ $8.33/day. Over a month (22 trading days) ≈ $183. The price, however, may move against you—the swap doesn’t “insure” price risk; it only adds an interest “bonus.”Bottom line: a positive swap is a nice addition to a trade idea, but not a substitute for trend and risk analysis.
Carry Trade strategy (earning from swaps)
The carry trade strategy seeks profit from a positive swap: borrow the “cheap” currency at a low rate and hold the “expensive” currency with a higher rate. Income accrues daily.
Carry trade is based on the interest‑rate differential: by buying a high‑rate currency for a low‑rate one, you receive a daily interest add‑on as a swap. The more stable the exchange rate and the larger the rate gap, the more attractive the strategy. Case: AUD/JPY with a positive swap
Open a long position of 1 lot in AUD/JPY. AUD rate ~4%, JPY ~0%. Theoretical daily swap ≈ 100,000 AUD × 4% / 365 ≈ 10.96 AUD per day. Over 22 trading days that’s ≈ 241 AUD added to P&L, all else equal. Bottom line: even in a sideways market the position earns from the swap. But if price falls, the interest uplift won’t save you from a mark‑to‑market loss—price risk matters more.
Pros and cons of carry trade
✅ Pros
- Passive income from a positive swap when the exchange rate is stable.
- Compounding effect: daily accruals gradually grow capital.
- Two sources of profit: price and interest.
❌ Cons
- Currency risk: adverse price moves may overwhelm swap income.
- Central‑bank risk: changes in the rate differential change the swap.
- Unleveraged returns are modest; leverage amplifies both returns and risks.
💰 Carry Trade Strategy
Learn how to earn from positive swaps and use interest‑rate differentials wisely.
Swaps on cross‑rates and exotic pairs
The principle is the same: swap = rate differential between the two currencies. On crosses (no USD) and exotics, magnitudes can be less intuitive and much larger in absolute value.
In cross‑rates (EUR/GBP, AUD/CHF, GBP/JPY) the swap sign depends on which currency you “hold” and which one you “borrow.” For example, a short EUR/GBP with EUR at 4% and GBP at 5% yields about +1% annual swap, while a long yields about −1%. Case: short EUR/GBP
Notional €100,000. The rate differential is ~+1% in favor of the position. Daily swap ≈ €100,000 × 1% / 365 ≈ €2.74 (converted by the broker into your account currency). For a long, the sign would be negative. Bottom line: on crosses, watch the rates of both currencies—the swap’s sign and size may be non‑obvious at a glance.
Exotics (USD/TRY, USD/MXN, etc.) often produce extreme swaps due to high policy rates, but they come with lower liquidity/wider spreads and higher volatility. The potential swap “plus” is easily offset by price risk. Tip: before trading a cross or an exotic, check both values—Swap long and Swap short—and assess the spread: it’s usually wider than on majors.
Swap under high leverage: the true cost of holding
The swap accrues on the entire notional of the position, not just your margin. Leverage amplifies both return and costs.
With 1:100 leverage you control 1 lot (100,000) with a deposit of ~1,000. If the rate differential is −5% annually, the daily swap ≈ 100,000 × 5% / 365 ≈ $13.7. Over 252 trading days that’s ~ $3,450—an amount that can “eat” the deposit if ignored. Case: the “tiny” swap on small size
A swap of −$0.80/day on 0.1 lot looks trivial. Over a year that’s ~ $292. On 1 lot under the same conditions it’s ~ $2,920 per year. Swaps rarely kill in a day—they erode your results slowly and quietly. Bottom line: with medium/high leverage, negative swaps must be in your risk plan alongside price risk.
| Parameter | 0.1 lot | 0.5 lot | 1 lot | Commentary |
|---|---|---|---|---|
| Swap −$0.8/day per 0.1 lot | −$0.8/day | −$4/day | −$8/day | Linear scaling by size |
| Over 22 trading days | ≈ −$17.6 | ≈ −$88 | ≈ −$176 | Monthly back‑of‑the‑envelope |
| Over 252 trading days | ≈ −$201.6 | ≈ −$1,008 | ≈ −$2,016 | Excluding triple swaps and holidays |
| Accounting for 52 “triple” weeks | add ~30–40% | add ~30–40% | add ~30–40% | Rough estimate: depends on broker rules |
⚖️ Leverage & Risk Management
Understand how leverage affects carrying costs and why sound risk management helps avoid margin calls.
How volatility and rates influence swaps
Swaps “breathe” with the rates market: central‑bank decisions and interbank quotes change their size. Price volatility affects your final P&L.
When the rate on the currency you bought rises, a positive swap grows (or a negative one shrinks). When it falls—the opposite. Sometimes the swap’s sign on a pair can change over time. Volatility doesn’t affect the swap directly, but it makes the carry approach vulnerable: a sharp price move can offset months of swap income. In short: for FX pairs the triple swap usually falls on the night from Wednesday to Thursday—this accounts for Saturday and Sunday. That day has an outsized impact on the weekly swap “balance.”
How to hedge negative swaps
The goal is to reduce costs, not “zero them out.” Any hedge carries its own costs and risks.
- Don’t carry the position. Intraday trading eliminates swaps—but changes your strategy and risk profile.
- Choose a product without swaps. Currency futures/forwards embed the rate differential in price rather than a daily payment.
- Offsetting asset. A second position with a positive swap can partly cover the negative one (correlation matters).
- Overnight “lock.” Temporarily net out exposure into the rollover. Cons: spread, potential swap asymmetry, complexity.
Swap vs spread, commission and margin: what’s the difference
To avoid confusion about costs, let’s compare the four concepts side by side.
| 💱 Swap | 🔀 Spread | 💸 Broker commission | ⚖️ Margin |
|---|---|---|---|
| Periodic interest adjustment for carrying a position. | Difference between Ask and Bid—a one‑time “entry/exit fee.” | Direct fee per trade or service (flat/percent). | Collateral (the locked portion of funds), not a fee. |
| Depends on rate differential and direction; can be +/−. | Depends on instrument liquidity/volatility. | Depends on account type/execution model. | Depends on leverage and size; released after closing. |
| Charged daily at rollover (triple once a week). | Charged at the moment of the trade. | Charged at the moment of the trade (or per broker terms). | Held while the position is open; not an expense per se. |
Tip: swap is the only one of the four that directly depends on holding time.
Impact of holding time and day of week
Swaps barely affect short‑term strategies but are critical for swing and position trading.
- Scalping/day trading: positions are closed before rollover—no swap.
- Swing/medium term: negative swaps accumulate and shift breakeven; positive ones add an “interest tail.”
- Day of week: account for the triple swap; carrying across the “triple” day is more expensive.
- Holidays and server time: non‑standard accruals are possible—check your broker’s schedule.
Note: during prolonged drawdowns accumulated swaps reduce free margin and can bring you closer to a margin call. Monitor swap totals in your reports.
Checklist before carrying a position overnight
Swap‑free accounts (trading without swaps)
A solution for those who don’t want to pay/receive interest or who hold long positions with negative swaps. On such accounts swaps aren’t applied, but alternative fees may appear.
Swap‑free removes both outcomes: you don’t pay a negative swap, but you also don’t receive a positive one. Brokers may introduce a fixed overnight fee, a holding‑time limit, or compensate canceled swaps with wider spreads. For long negative‑swap positions this can be beneficial; for carry trade—it’s not appropriate. ✅ Advantages
- No swap expense when carrying long‑held positions.
- Meets religious restrictions (no interest).
- Easier risk planning: fewer variables in the equation.
❌ Disadvantages
- No swap income when the direction is “positive.”
- Possible fixed fees or broker limitations.
- Not always available for all instruments.
Practical tips for beginners
- Check Swap long/short before entering if you plan to hold > 24 hours.
- Lock in the format: pips, money, annual/daily percent—your calculation depends on it.
- Account for the triple swap and the holiday calendar.
- Compare account types: ECN/Standard, availability of swap‑free and any alternative fees.
- Don’t “out‑sit” positions with large negative swaps out of hope.
- A positive swap is a bonus, but price matters more: interest won’t offset a strong trend against you.
- Practice on a demo and use a swap calculator—before risking real money.
Pro tip: in MetaTrader add the “Swap” column in the “Trade” tab to see accruals per order and make timely decisions.
Common mistakes when dealing with swaps
❌ What often goes wrong
- Pip vs point. Mis‑converting a swap in pips due to mixing up 1 pip and 0.1 pip.
- Ignoring the triple swap. A mid‑week “surprise” is per the schedule, not a “bug.”
- Day‑count basis 360/365. Over long periods the difference is noticeable.
- “Positive swap” without chart analysis. Interest doesn’t cancel the trend.
- No planning. Swap costs aren’t built into targets and risk—P&L melts away.
📖 Beginner’s Guide to Forex
If you’re just getting started, we recommend reading the basics first: what Forex is, how it works, and how to begin safely.
Frequently Asked Questions (FAQ)
What is a Forex swap in simple terms?
It’s the daily interest adjustment on an open position for carrying it overnight. It can be positive (credit) or negative (debit). The size depends on the interest‑rate differential in the currency pair and your broker’s conditions.
Why is there a triple swap and when is it applied?
To account for weekends when the market is closed, the swap is charged in triple size once a week. Most commonly—on the night from Wednesday to Thursday for FX pairs (check your broker’s rules for your instrument).
Can you earn money from swaps?
Yes, if the rate differential is in your favor and the broker’s markup doesn’t “eat” it away. This is the basis of carry trade. But price risk remains—the exchange rate can move against your position.
How do I convert a swap: pips, percent, or money?
Check the instrument specification. When the swap is quoted in pips—multiply by the pip value and your size. If it’s quoted directly in money—just multiply by the number of lots. If the data is given as annual percent, divide by 360/365 and multiply by the position notional.
Where do I see the swap in the terminal?
In MetaTrader—right‑click a symbol in “Market Watch” → “Specification.” You’ll find Swap long and Swap short there. In the “Trade” tab add the “Swap” column to see accruals on open positions.
What is swap‑free and what’s the catch?
An account without swaps. Alternative fees (e.g., a fixed overnight charge) or holding‑time limits are often introduced. Useful for long negative‑swap positions; not suitable for carry trade.
How does swap affect risk management?
Negative swaps increase the “price” of holding every day, shifting breakeven and reducing free margin. Plan trades with room for these costs, especially in medium‑term strategies.
Does the swap size change over time?
Yes. Brokers regularly recalculate swaps based on interbank rates and central‑bank decisions. The sign and magnitude can change.
Why do different brokers have different swaps?
A broker may add a commission/markup to the baseline rate differential and use different liquidity sources. Hence the discrepancies for the same instrument.
How do I choose a currency pair for carry trade?
Look for a large rate differential with moderate volatility. Often these are pairs with JPY or crosses with higher‑yielding currencies (AUD/JPY, NZD/JPY, etc.). Always check the actual Swap long/short with your broker.
Conclusion
A swap isn’t a “hidden trap,” but a transparent interest mechanism tied to rate differentials between currencies. By understanding how it’s calculated, you can factor it into profit/loss in advance and avoid unpleasant surprises when carrying positions. For short‑term trading the swap is negligible, but for medium‑term and position approaches it’s critical. Check the Swap long/short values, account for the triple swap, and use swap‑free if needed. Remember: a positive swap is a bonus—not a substitute for trend and risk analysis.
Takeaway: manage swaps consciously—then they’ll stop “eating” your profit and, with a smart approach, can even become an additional source of income.
Key point: before entering a trade, answer three questions: what’s the swap for my direction, when is the triple day, and how much will the swap be over my planned holding period. These three numbers can change decisions.