Forex · Intermediate · 4 min

Swap and rollover

You can explain why holding a leveraged forex position overnight earns or costs money, and estimate what that means over weeks and months.

The overnight charge

A trader opens a position in a currency pair in the evening and checks the account the next morning. The price has not moved, but the balance has. A small amount was charged, or occasionally credited, overnight.

That is the swap, also called rollover. For short trades it hardly matters. For positions held for weeks or months, it can decide whether a trade makes money at all.

Earn or pay the gap

A leveraged forex position with a retail broker works like borrowing one currency to hold another. Buying EUR/USD, for example, means holding euros financed with dollars.

Spot currency trades normally settle after a short period. A position that is held open is pushed forward to the next settlement date every night. This rollover comes with an interest adjustment:

You earn interest on the currency you hold.
You pay interest on the currency you borrowed.

The net amount, adjusted by the broker, is the swap rate, shown in most platforms per lot and per night. If you hold the higher-yielding currency, you may receive a swap. If you hold the lower-yielding one, you pay.

Two details matter in practice:

Markup: brokers add their own charge. As a result, the swap on one side can be smaller than the rate gap, and at some brokers both sides of the same pair pay.
Weekends: many brokers book three days of swap on one weekday, often Wednesday, to account for the weekend.

Retail forex dealers must send clients regular statements of their account activity, as the NFA's rules require, which show these charges. Checking them is worthwhile.

Small nightly, big monthly

A fictional trader holds one standard lot, 100,000 units, long in a currency with a 1% rate against one with a 5% rate.

The rate gap is about 4% a year against the trader. On 100,000, that is about 4,000 a year, or roughly 11 a night.
With the broker's markup, the platform shows a swap of −12 per night.
Held for three months, about 90 nights, the cost is around 1,080.

The price has to move about 108 pips in the trader's favor just to cover the swap, on top of the spread.

Common mistakes

Ignoring swaps on long holds. They add up quickly.
Assuming a positive swap is free money. The rate gap often reflects currency risk.
Forgetting the triple-swap day. One night can cost three times as much.
Not checking your broker's rates. Markups differ between providers.

The takeaway

Leveraged forex positions held overnight are rolled over. You earn or pay the interest gap between the two currencies, minus the broker's markup.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the position that usually pays the overnight swap.

Tap the chart.

Buying the lower-yielding currency against the higher-yielding one costs the rate gap each night, plus the broker's markup.
2Why does a broker charge or credit a swap when you hold a position overnight?

A leveraged spot position is effectively financed in one currency and invested in the other.
3Why can you pay a swap on both sides of the same pair at some brokers?

The swap you see is the rate gap adjusted by the broker's own charge.
4Why is the swap often charged three times on one weekday?

Many brokers book three days of swap on one weekday to account for the weekend.

of 4 correct.