What is a Forex swap ? (Part 3 : Ending)

Previous part : https://cutt.ly/Dj8LQrp

How do brokers get their Tom/Next rates？

Some brokers source Tom/Next rates from one of leading global investment banks or similar institutions. These rates are regularly updated to reflect the dynamics of the Tom/Next market.

Daily swap rate credit charge / credit = (One point / Exchange rate) x (Trade size [or Notional amount] x Tom/Next rate)

For example :

- Currency pair : EUR/USD

- One point : 0.00001

- Account base currency : EUR (Euro)

- Exchange rate : 1.1290

- Trade size : 1 lot (€100,000)

- Long swap rate : -11.49, Short swap rate: +7.02

Swap value to be debited from your account: (0.00001/1.1290) x (100,000x-11.49) = - €10.18

If you had a short position on a EUR/USD contract, you would receive €6.22 per day.

What is a triple swap？

A three-day rollover is a standard in Forex industry. While traders will be charged (or credited) the Tom/Next one-day rate if they hold positions after 5:00 p.m (New York time), the most confusing and misunderstanding part of the rollover fee is three-day rollover fee, also known as triple swap Wednesday.

This is because if a trader holds a position after 5:00 p.m (New York time) on Wednesday, the trade will be treated as executed on Thursday and the account will be adjusted for three-day interest.

Due to the T+2 nature of settlement, the settlement date to which the broker is exposed is postponed to Monday, meaning the trader will be charged (or credited) with fees for both weekend days. Even though Forex markets are closed, the three-day Tom/Next is traded in calendar days.

Stay ahead of your trade

When trading Forex, you shouldn't just watch your P&L. Swap fees can increase or hinder the progress of your account depending on the currencies that you trade and interest rate differentials. It is important to know what rollovers are and how they apply to your account, as well as the common traps for whom hold positions overnight.

(End.)