How is the Swap fee calculated? Why does it generate profit from your portfolio?

When you just start trading, many people tend to focus only on Spread and Commission, but there is another hidden cost that is just as important: Swap. If you understand how Swap is calculated and where it comes from, you can plan your trades more effectively and prevent this hidden cost from eating into your profits unknowingly.

What is Swap and Where Does It Come From?

Swap is a fee charged for holding a (Position) overnight. In financial terms, it is called “Overnight Interest” or “Rollover Fee.” In other words, it is the interest accrued from holding a trade position from one day to the next.

The main reason for Swap

When you trade (for example, EUR/USD), you are doing one thing: borrowing one currency to buy another. Imagine opening a Buy EUR/USD order:

• You are “buying” EUR and simultaneously “borrowing” USD to pay for it.

Now, each currency in the world has its own (Policy Rate) set by the central bank, such as FED for USD or ECB for EUR.

• When you “borrow” USD, you must pay interest on that USD.
• When you “hold” EUR, you should earn interest from holding it.

The Swap charged to your account is the (Net Difference) between these two interest rates.

Example of calculating the interest differential

Suppose:

• EUR interest rate = 4.0% per year
• USD interest rate = 5.0% per year

If you Buy EUR/USD (buy EUR, borrow USD):

• Earn interest on EUR = +4.0%
• Pay interest on USD = -5.0%
• Net difference = 4.0% - 5.0% = -1.0% per year → you pay a negative Swap

If you Sell EUR/USD (borrow EUR, hold USD):

• Pay interest on EUR = -4.0%
• Earn interest on USD = +5.0%
• Net difference = 5.0% - 4.0% = +1.0% per year → you receive a positive Swap

Why do brokers charge Swap higher than the theoretical?

In reality, the Swap you see on the platform is not exactly the real interest differential. Brokers act as intermediaries; they add a “markup” or “handling fee” of their own.

For example:

• Actual interest differential = -1.0% per year
• Markup/handling fee = -0.15% per year
• Actual Swap you pay = -1.15% per year

This is why the Swap for Long (buy orders) and Short (sell orders) are never exactly the same. Usually, both Long and Short are negative (negative), meaning you pay on both sides.

Swap for other asset types

This concept of Swap is not limited to Forex. It extends to other CFD assets as well:

Stocks and Indices (Stocks/Indices): Swap depends on the interest rates of the currency in which the asset is traded, e.g., US stocks are calculated based on USD rates plus broker markup.

Commodities (Commodities - Gold, Oil): More complex, as it may depend on (Storage Costs) or (Futures Rollover) adjustments.

Cryptocurrencies (Crypto): Usually based on the Funding Rate in exchange markets, which can be highly volatile and change frequently.

Types of Swap traders need to know

Swap Positive vs Swap Negative

Positive Swap occurs when you are receiving money, which happens when the interest of what you “buy” is significantly higher than what you “borrow” (after deducting handling fees).

Negative Swap is the most common scenario, where you pay every night. It occurs when the interest of what you “buy” is lower than what you “borrow,” or even if slightly higher, it’s not enough to cover the broker’s handling fee.

Swap Long and Swap Short(

Brokers specify separate Swap rates for each direction:

• Swap Long )Swap Buy(: Rate used for Buy orders
• Swap Short )Swap Sell###: Rate used for Sell orders

( 3-Day Swap )Triple the Swap(

This is a common pitfall for beginner traders. Usually, Swap is calculated once per day, but there is one day in the week where the Swap is tripled )3x(.

Why is that?

Forex markets are closed on Saturday and Sunday, but interest in the financial world continues every day, including holidays. Therefore, brokers include the Swap for Saturday and Sunday in the calculation for the next trading day.

Which day? Mostly on Wednesday night )for holding from Wednesday to Thursday(. The technical reason is that Forex settlement is T+2, meaning if you hold a position from Wednesday, the settlement date is Monday )skipping Saturday-Sunday###, so the broker accounts for 3 days of interest.

How to check Swap rates before trading

Before opening an order, you should check the Swap value.

( For MT4/MT5 platforms:

1. Go to Market Watch
2. Right-click on the asset )e.g., EUR/USD###
3. Select Specification
4. Find the lines Swap Long and Swap Short
5. The numbers are in Points, which need to be converted

( For newer platforms: Many brokers display Swap as “percentage per night,” which is easier to understand )e.g., -0.015% per night###, allowing more precise cost calculation.

How to calculate Swap costs

( Method 1: Using Points

For trading 1 Lot Standard )100,000 units(:

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

Example:

• You buy 1 Lot EUR/USD
• Swap Long = -8.5 Points
• For EUR/USD, 1 Lot, 1 Pip )10 Points( has a value of )USD$10
• 1 Point = $1 USD(
• Calculation: )-8.5( × )$1( = -8.5 USD per night
• For Wednesday night )3-Day Swap(: )-8.5### × 3 = -25.5 USD

( Method 2: Using percentage per night

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

Where: Total position value = )Lot size( × )Contract size( × )Market price(

Example:

• You buy 1 Lot EUR/USD )1 Lot = 100,000 units(
• Price EUR/USD = 1.0900
• Overnight fee )Buy( = -0.008% per night

Step 1: Calculate total value = 1 × 100,000 × 1.0900 = 109,000 USD

Step 2: Swap = 109,000 × )-0.008 / 100( = -8.72 USD per night

Step 3: For 3-Day Swap = )-8.72( × 3 = -26.16 USD

) Key points often missed

Swap is calculated based on the full value of the position, not just the Margin you put up.

Suppose you use leverage 1:100 to open this 1 Lot position. You might only need to put up 1,090 USD Margin, but the Swap cost is 8.72 USD per night, which is ###8.72 / 1,090( × 100 = 0.8% of Margin per night.

This is why Swap can be a sneaky hidden cost. With high leverage and a market that doesn’t move much, profits can be eaten away by Swap costs.

Opportunities and Risks

) Risks

Eroding profits: If you make a profit of 30 USD but hold for 3 days and pay 3-Day Swap of -26 USD, your net profit is only 4 USD. It might seem okay, but it can eat into your gains.

Forcing position closure: In sideways markets ###sluggish(, negative Swap can gradually drain your account, forcing you to close positions prematurely.

Leverage risk: Swap is calculated on the full position value, which can be much larger than your actual Margin. Margin calls become more likely.

) Opportunities

Carry Trade Strategy: This involves exploiting positive Swap by borrowing currencies with low interest rates ###e.g., JPY, CHF( to buy currencies with high interest rates )e.g., MXN, TRY( at certain times).

Example: Buy AUD/JPY (buy Australian dollar, borrow Japanese yen). If Swap Long is positive, you earn interest every night.

Risks: If AUD/JPY drops sharply, the loss from price movement can outweigh the Swap gains over a year. Carry trades are best in stable markets.

Swap-Free (Islamic) Accounts (: Many brokers offer accounts that do not charge Swap, suitable for long-term traders )Swing/Position Traders(. Usually, the cost is embedded in a slightly wider spread or a fixed management fee.

Summary

Swap costs are not just ordinary fees; they are costs directly related to your trading style.

• Scalpers )Scalpers(: Not affected much because they close positions within minutes or hours.
• Swing Traders: Moderate impact; should choose positive Swap or use Swap-Free accounts.
• Position Traders: Heavily affected; should consider Swap-Free accounts or carry trade strategies.

Choosing a transparent broker and a platform that clearly displays Swap information helps you plan your trades effectively, avoiding surprises from hidden costs later on.