Swap on forex and overnight cost

This lesson explains what swap is and how to calculate the cost of holding a position for one night, one week, and one year, expressing the result in R. It is designed for someone who plans a longer horizon — swing or carry position — and wants to know how much each night really costs, instead of finding out from account history after the fact.

What swap on forex is

A position held overnight does not close by itself — the broker rolls it to the next settlement date and settles the interest differential of both currencies. This operation is called rollover, and its result is swap. Swap is not a broker fee in the sense of commission, although the broker adds its own margin to it: it primarily results from the interest rate differential between the base and quote currencies.

Swap is given in the instrument specification, separately for long and short positions, and that is the number that applies to your account. Swap quotes change together with central bank decisions and the bureau’s policy, so you check them before the trade, not memorise them.

Where swap comes from

In pure theory, swap corresponds to the interest rate differential of both currencies, translated into position size and number of days. In practice:

• Long on the currency with the higher rate — you are buying the currency that pays more, so you may receive positive swap.
• Short on the currency with the higher rate — you usually pay swap.
• Broker adds margin, so the real value differs from the pure rate difference and is often negative on both sides.

Direction is therefore predictable, but the amount is not. Never assume that swap will certainly be positive or negligible — read both values, long and short, from your broker’s instrument table.

How to calculate overnight cost — protocol

The order of steps matters more than the arithmetic itself, because swap can be given in points or directly in account currency. All numbers in the example are illustrative, and you check swap and point value for your pair with your broker.

1. Read long swap and short swap for your pair, and the unit in which it is given.
2. If swap is in points, convert it to account currency: daily_swap_USD = points x point_value_USD.
3. Convert swap to your lot size, if the specification gives it for one standard lot.
4. Multiply by the planned number of nights: horizon_cost = daily_swap x number_of_nights.
5. Divide by 1R for this setup: cost_in_R = horizon_cost / 1R.
6. Record the result in the transaction card together with the data source and the date the table was checked.

Example and worksheet follow the same logic as in the Polish original, adapted for global English and for the cost structure of a retail CFD or forex account. The key point is that swap is not a one-time fee — it is a daily charge that accumulates over the holding period and must be included in expectancy calculations.

Illustrative example: swap -$3 per night, planned horizon 5 nights, 1R equals $60.

A cost of 0.25R means the setup must deliver more than 0.25R on average just to break even — the number you compare with expectancy from the journal.

Swap as a percentage of 1R and as yearly cost

Once you have daily swap in account currency, you can convert it to two useful measures:

• Cost as a fraction of 1R: cost_in_R = daily_swap x number_of_nights / 1R.
• Yearly cost: yearly_cost_USD = daily_swap x 365; yearly_cost_R = yearly_cost_USD / 1R.

yearly_cost (USD) = daily_swap x 365
yearly_cost (%) = (yearly_cost / capital) x 100
yearly_cost (R) ≈ yearly_cost (%) / risk_per_trade (%)

Example: daily swap is -$10 per night for a mini lot, 1R is $200, and the planned horizon is 5 nights. Cost in R is -10 x 5 / 200 = -0.25R. Yearly cost is -10 x 365 / 200 = -18.25R, or about -18.25 per cent of capital at 1 per cent risk per trade. The last line works because both values are measured relative to the same capital. Swap and its sign are specific to the broker, so plug in numbers from your own table and confirm them with your broker; the rollover mechanics are covered in the lesson Swap and overnight costs. The sheet for keeping these calculations is also in the swap x nights section.

When swap changes the plan

Swap is not included in the spread or commission. It is charged separately and can be positive or negative. For a day trader who closes positions before rollover, swap is usually irrelevant. For a swing trader who holds for several days, swap becomes a material cost. For a position trader who holds for weeks or months, swap can dominate the result.

Practical rules:

• Before entering a swing trade, calculate swap cost for the planned holding period. If it exceeds 0.1R, include it explicitly in the expectancy calculation.
• If swap is negative and large, consider whether the trade is still worth taking at the planned size.
• If swap is positive, do not increase size just because of carry. Size still comes from the risk budget and stop distance.
• Check swap values before every trade. They change with interest rate decisions and broker margins.

On longer horizons, swap stops being an add-on and becomes part of the strategy. Central bank rate policy changes the swap table, so reading it is part of planning — how to read those decisions is covered in the lesson on central banks. The cost of the whole open-and-close cycle is broken down in the lesson on round-trip cost, and the effect of leverage and required deposit on holding a position is explained in the lesson on leverage in practice.

Four conditions under which overnight cost should hold off an entry:

1. You do not know the long and short swap for your pair and direction. Without those two numbers you do not know which side of the market is cheaper, so you do not know the cost of your decision.
2. Horizon cost exceeds a set share of the expected profit. A threshold of 25% of target is illustrative — set your own and write it in the plan before you open a position.
3. The horizon includes a day with a multiple charge and you did not check it. The cost of the week is then higher than the sum of seven ordinary nights.
4. An exotic pair with a high rate and a short horizon. Extreme swap can eat most of 1R before the setup works, so leave exotics for later.

Session overlap and swap timing

Swap is charged at a specific time, usually around 21:00 or 22:00 Central European Time, depending on the broker. If you enter a position after that time, you may be charged swap for two nights at once, or the swap calculation may be different. Check your broker’s rules for the exact timing.

On some brokers, swap is tripled on Wednesdays for positions held through the weekend. On others, it is calculated daily but may be higher on Fridays. The exact method differs, so read the specification.

How much attention swap deserves depends on the horizon:

Overnight cost worksheet — fill in for your pair

Common mistakes with swap

• Ignoring swap on swing trades because the chart looks good. Swap is a real cost that reduces net profit.
• Assuming swap is always negative. On some pairs and directions, swap is positive.
• Forgetting that swap is charged per night. A five-night swing has five times the daily swap cost.
• Using swap as a trading signal. Carry trade is a strategy, but it requires analysis of the interest rate environment, not just a positive swap table.
• Not checking swap before entering. Swap values change with central bank decisions and broker margins.

Exercise

Choose one pair you want to trade on a swing horizon. Find the swap values in your broker’s instrument table. Calculate the cost for one night, five nights, and twenty nights in account currency and in R. Compare the results with your typical 1R and write one rule: the maximum number of nights you will hold a position on this pair without recalculating expectancy.

Check yourself

Common questions

Can I receive swap instead of paying it?

Yes — when you take the side of the currency with the higher rate, the broker may credit a positive amount. Do not assume it in advance, though: the broker's margin is often higher than the rate difference, so read both values from the specification and check them with your broker.

Does day trading pay swap?

If you close the position before rollover, swap is usually not charged. The situation changes for positions held overnight and over weekends and holidays, when the charge can be a multiple — the exact day and multiplier depend on the broker.

Where can I find the swap for my pair?

In the instrument specification at the broker, separately for long and short, often together with the unit (points or account currency). On a demo platform the daily swap is also sometimes visible in the details of an open position, which lets you compare theory with the actual charge.

Why does this lesson convert swap to a yearly figure and to R instead of stopping at the cost of one night?

Because a single night is too small to decide anything, and that is exactly why it is easy to ignore. The yearly cost lets you compare swap with the expected result of the strategy in the same unit, and converting to R shows what part of the risk budget disappears before any price move. Without that unit conversion you cannot tell a horizon where swap is an add-on from one where it decides the outcome.