Swap in trading: The hidden cost that beginner traders often overlook

Most traders tend to see only the Spread and Commission, but there is another hidden cost quietly eating into your profits: Swap. If you want your trading plan to be accurate, you need to understand how it works, how to calculate it, and its impact on your profitability.

What is Swap: Basic Understanding

Swap is a fee charged when you hold a trading position overnight. It is the interest accrued from borrowing one currency to buy another. In financial terms, it is called “Overnight Interest” or “Rollover Fee.”

The reason for Swap

The key point is that traders are not actually purchasing the asset outright. On a CFD trading platform, you are “borrowing” one currency to “buy” another. Each currency has its own policy interest rate set by the central bank. When you borrow a currency, you pay interest; when you hold a currency, you receive interest.

Real example: Suppose you Buy GBP/USD (, borrowing dollars)

• GBP interest rate = 5.5% per year ( you receive)
• USD interest rate = 5.0% per year ( you pay)
• Theoretically, the difference = +0.5% per year

But brokers add their handling fee, so what you actually receive may be much less, or both sides could be negative.

Types of Swap traders will encounter

Positive Swap and Negative Swap

Positive Swap is when you receive money into your account, occurring when the interest of the asset you buy is higher than that of the borrowed asset.

Negative Swap is the most common situation, where you have to pay money out of your account every night. This happens when overnight contracts favor the broker.

Long Swap vs. Short Swap

These are different Swap values for each trading direction. Brokers never set them equal because they need to earn money, so they are not always the same.

3-Day Swap: What to watch out for

This is the period when novice traders are often surprised. Usually, Swap is calculated once per day, but there is one day in the week where it is tripled. The reason is that Forex and CFD markets are closed on Saturday and Sunday, but interest in the financial system continues to accrue. Brokers combine the Swap for 3 days ( Saturday, Sunday, Monday or Saturday, Sunday, Monday ) into a single night (, typically Wednesday night or Friday night, depending on the broker)

The impact is that if you hold one order overnight normally paying 8.5 USD, during the 3-Day Swap you will pay 25.5 USD in one night.

How to view Swap values on trading platforms

On MT4/MT5:

1. Market Watch → Right-click → Specification
2. Look for Swap Long and Swap Short ( in Points)

On modern platforms:

1. Select the asset
2. Check the “Introduction” or “Details” section
3. Find “Overnight Fee”

Most display as % per night (e.g., -0.008% per night), which is easy to understand.

How to accurately calculate Swap costs

Method 1: If the broker shows in Points

Formula: Swap (Amount) = (Points) × (Value of 1 Point)

Example: Buy 1 Lot USD/JPY, Swap Long = -15 Points

• 1 Lot USD/JPY, 1 Pip = 10 USD
• 1 Point = 1 USD
• Swap = -15 USD per night
• 3-Day Swap = -15 × 3 = -45 USD

Method 2: If the broker shows in %

Formula: Swap (Amount) = (Total position value) × (Rate %)

Example: Buy 1 Lot AUD/USD at 0.6800, overnight fee = -0.009%

• Position value = 1 × 100,000 × 0.6800 = 68,000 USD
• Swap = 68,000 × (-0.009 ÷ 100) = -6.12 USD per night

Important point: Swap is calculated based on the full value of the position, not the Margin you put up. If you use 1:100 leverage, you put up 680 USD Margin but pay 6.12 USD per night, which is 0.9% of Margin per night.

Potential risks

1. Quietly eating profits You might gain 30 USD from price movement, but if you hold for 3 nights with negative Swap of 26 USD, only 4 USD remains, making the trade barely profitable.

2. Increasing cost pressure In slow-moving markets, negative Swap slowly erodes your account daily. Traders are forced to close orders even if their original plan isn’t finished.

3. Leverage risk Since Swap costs are based on the full value, which is much larger than your Margin, the risk of Margin Calls increases if the market moves against you.

Opportunities to leverage

1. Carry Trade Strategy Borrow low-interest currencies (JPY, CHF) to buy high-interest currencies (TRY, MXN) to earn positive Swap daily. For example, buy NZD/JPY or buy AUD/JPY during stable market periods.

Risk: The main risk is price movement. If AUD/JPY drops sharply, the loss from price movement could outweigh the annual Swap gains.

2. Swap-Free (Islamic Account) Many brokers offer this type of account, which does not charge Swap regardless of how long you hold. Suitable for Swing Traders or Position Traders who want to hold for weeks or months.

Trade-off: Spread may be wider, or there may be a management fee if held beyond a certain number of days.

Summary

Swap is not just a random fee; it is a real cost arising from complex financial mechanisms. Its impact varies for each trader:

• Scalpers/Intraday traders: Little to no impact, as they close positions within the day.
• Swing/Position traders: Significant impact; may need to choose Positive Swap Pairs or Swap-Free accounts.
• Carry Trade specialists: Can benefit if they understand the price risks involved.

Choosing a broker that transparently displays Swap information and has a clear platform is crucial, so you can plan your trades accurately without hidden costs surprising you later.