Swap is the overlooked cost for traders - a must-know before holding overnight orders

Many people when entering the trading market tend to focus only on the (Spread) or commissions, but they overlook a more important “hidden” factor — the Swap or overnight fee, which has various names in the financial world. It is called Overnight Interest or Rollover Fee.

The problem is that brokers do not often mention it, and novice traders may not fully understand what the numbers they see mean. As a result, many realize only when small profits are eaten away by unexpected Swap costs.

The Origin of Swap: The Hidden Reality

Having a Swap value is not solely the broker’s decision but is rooted in the real financial world, especially from the concept called “Interest Rate Differential” — the difference in interest rates.

Imagine trading EUR/USD: in reality, you are “borrowing” one currency to pay or “buy” another:

If you Buy (Long) EUR/USD → Borrow USD to buy EUR
If you Sell (Short) EUR/USD → Borrow EUR to receive USD

Every currency has its own interest rate set by the central bank. Euro has a different rate from the dollar, and the dollar differs from the yen. When you “borrow” a currency, you must pay interest, and when you “hold” a currency, you receive interest.

Swap is essentially the net difference of these two interest rates.

For example, if the Euro interest rate (EUR) is 4.0% per year, and the USD interest rate (USD) is 5.0% per year:

• Buying EUR/USD: You earn EUR interest (4.0%) but pay USD interest (5.0%) → the difference is -1.0% (must pay Swap)
• Selling EUR/USD: You pay EUR interest (4.0%) but receive USD interest (5.0%) → the difference is +1.0% (receive Swap)

Why do we often lose?

In theory, you might “should receive” a positive Swap, but in reality, brokers add their own “handling fee” or “markup.” Therefore, even if the interest rate differential is positive, the broker may take a portion as a fee.

As a result, the actual Swap you receive could be less than expected or even negative on both Long and Short positions.

This explains why Swap Long and Swap Short are not the same percentage.

Swap is not just about Forex

This concept also applies to other assets:

Stocks/Indices (Stocks/Indices): Swap often depends on the interest rates of the currency involved, e.g., US stocks are linked to USD interest rates.

Commodities (Commodities): More complex, as Swap may depend on storage costs (Storage Costs) or futures rollover.

Crypto (Crypto): Based on the Funding Rate in the market, which can be more volatile.

Types of Swap traders encounter

Positive Swap = You earn money every night you hold the position, occurring when the interest rate of the bought asset is higher than the borrowed one (even after fees)

Negative Swap = You pay money every night you hold the position (more common), occurring when the interest rate of the bought asset is lower than the borrowed one, or slightly higher but not enough to cover fees.

Swap Long vs Swap Short = Different rates for different trading directions.

The overlooked point: 3-Day Swap

This is a good practice that not everyone knows. Since the Forex market closes on Saturday-Sunday, but interest continues to accrue, brokers need to consolidate the Swap for the holiday.

Usually on Wednesday night, because the settlement cycle (Settlement) is T+2, so if you hold from Wednesday to Thursday, the broker will include the Swap for Friday, Saturday, and Sunday.

As a result, that night, you will see the Swap value jump 3 times.

Note: Some brokers use Friday or other days; always check with your broker for clarity.

How to check Swap before trading

In MT4/MT5:

1. Go to Market Watch
2. Right-click on the asset
3. Select Specification
4. Look for “Swap Long” and “Swap Short” (in Points, need to convert to)

In other platforms: Modern trading platforms often display this information in “Asset Details” or “Fee Information,” usually as a percentage per day, which is easier to calculate.

Detailed Swap calculation

Method 1: From Points units (MT4/MT5)

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

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

• EUR/USD 1 Lot, 1 Pip = (USD)
• 1 Point = $10 USD$1
• Swap = (-8.5) × ($1) = -$8.50 per night
• If that night is a 3-Day Swap: (-$8.50) × 3 = -$25.50

Method 2: From percentage (%) per day

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

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

• Total value = 1 × 100,000 × 1.0900 = 109,000 USD
• Swap = 109,000 × (-0.008 / 100) = -$8.72 per night
• For 3-Day Swap: (-$8.72) × 3 = -$26.16

Important point often overlooked:

Swap is calculated based on the “full value,” not the Margin amount.

If you use 1:100 leverage on 1 Lot, you only put up 1,090 USD margin but pay $8.72 Swap daily, which is about 0.8% of your margin per day.

This is the risk: high leverage and sideways markets can cause Swap costs to eat into your entire account, even if prices hardly move.

Hidden risks and opportunities

Risks

Eroding profits: You might profit from a $30 move, but after 3 days of Swap (-$26), your net profit is only $4 or less.

Forcing position closure: In sideways markets, holding with negative Swap results in slow losses daily. You might be forced to close your position before your plan.

Leverage risk: Swap is based on full value, so it becomes very high with leverage, increasing Margin Call risk.

Opportunities

Carry Trade Strategy: Classic strategy involves “borrowing” low-interest currencies (like JPY) to “buy” high-interest currencies (like MXN, TRY) at certain times( to earn positive Swap daily.

Example: Buy AUD/JPY with positive Swap per day. Caution: Swap profits can be offset by large exchange rate losses, suitable in stable markets.

Islamic Accounts )Swap-Free Accounts(: Many brokers offer special accounts that do not charge Swap at all, suitable for Muslim Swing or Position traders.

Of course, “no Swap is free” — brokers make money elsewhere )wider spreads, fixed fees, etc.(

Trading style considerations

• Scalpers/Day Traders: Close within the day, no Swap concern.
• Swing Traders: Hold 2-5 days; Swap is an implicit cost, should be included in decision-making.
• Position Traders: Hold for months/years; Swap is a primary factor, use Carry Trade strategies or Swap-Free accounts.

Summary

Swap is not a one-time fee paid at opening but a daily cost that flows out. It originates from the real world of finance )Interest Rate Differential, but brokers add their own Markup.

Understanding this is crucial for long-term traders. They must choose between “accepting” negative Swap or finding clever ways to avoid it.

The main issue is not Swap itself but the “lack of awareness” before trading. Once you know this number, you can calculate total costs and make more informed decisions.