Abstract：In this article, we’ll demystify forex swaps, break down how they’re calculated, and explore practical strategies to minimize their impact—or even leverage them to your advantage. By the end, you’ll walk away with actionable insights, from interpreting swap rates on MetaTrader to choosing swap-free brokers that align with your goals.
Have you ever noticed a small charge added or subtracted from your forex trading account overnight? That‘s a swap—a concept every trader encounters but not everyone fully understands. Whether you’re a new trader navigating the mechanics of forex or a seasoned strategist refining your approach, grasping swaps is crucial for managing costs and optimizing your trades.
What is a Forex Swap?
A Forex swap is the interest adjustment that occurs when you hold a position overnight in the Forex market. It reflects the difference in interest rates between the two currencies in a currency pair. When you buy or sell a currency pair, you're essentially borrowing one currency to buy another, and swaps account for the interest rate differential. Swaps are applied at daily rollover time (usually 5 PM EST) and can impact your trading costs or profits, especially for long-term positions.
There are primarily two types of swaps that traders encounter. These swaps are based on the direction of your trade (buy or sell) and whether the interest rate differential works in your favor.
Positive Swap
A positive swap occurs when you earn interest for holding a position overnight. This happens if the currency you‘re buying has a higher interest rate than the currency you’re selling.
e.g. If you‘re buying AUD/JPY (Australian Dollar vs Japanese Yen), and the AUD interest rate is higher than the JPY interest rate, you’ll earn a positive swap.
Positive swaps benefit traders who holdlong-term positions in high-interest-rate currencies, as they can generate additional income through interest earnings.
Negative Swap
A negative swap occurs when you pay interest for holding a position overnight. This happens if the currency you‘re buying has a lower interest rate than the currency you’re selling.
e.g. If you‘re selling AUD/JPY, you’ll be borrowing the higher-interest-rate currency (AUD) and lending the lower-interest-rate currency (JPY). As a result, youll pay a negative swap.
Negative swaps increase trading costs, especially for traders who hold positions for extended periods. This is why short-term traders often avoid swaps by closing positions before the rollover time.
Other Key Points about Swap:
Triple Swap: On Wednesdays, brokers apply a triple swap to account for the weekend. This applies to both positive and negative swaps.
Swap-Free Accounts: Some brokers offer Islamic (swap-free) accounts for traders who follow Islamic finance principles. These accounts eliminate swaps but may involve other fees or commissions.
When is the Forex Swap Charged?
The Forex swap is charged when you hold a position open overnight, as it involves borrowing one currency to buy another and incurring interest rate differentials. Heres a detailed explanation of when and how swaps are applied:
Rollover Time (5 PM EST)
Swaps are applied at the daily rollover time, which occurs at 5:00 PM Eastern Standard Time (EST). If your position is still open at this time, the swap will be credited or debited to your account.
Triple Swap on Wednesdays
On Wednesdays, brokers apply a triple swap to account for the weekend. This means the swap amount is tripled for positions held overnight on Wednesday, regardless of whether its a positive or negative swap.
Why Not on Weekends?
The Forex market is closed on weekends, but swaps still apply for positions held over the weekend. Instead of charging swaps on Saturday and Sunday, brokers include these charges in the Wednesday triple swap.
How to Calculate the Forex Swap?
Calculating the forex swap involves understanding the interest rate differential between the two currencies in a pair, the size of your position, and the brokers swap rates.
The general formula for calculating the swap is:
· Position Size: Volume of your trade (e.g., 1 lot = 100,000 units)
· Swap Rate: Interest adjustment per night, expressed in pips or as monetary value
· Number of Nights: How many nights you hold the position
· Exchange Rate: Used to convert the swap into your account currency if the swap is quoted in a different currency
FX Swap Example (Calculation)
Lets break down an example of how a forex swap works in a real-world trading scenario:
Scenario:
· You decide to buy 1 lot (100,000 units) of EUR/USD because you believe the Euro will strengthen against the US Dollar.
· The EUR interest rate is 3%, and the USD interest rate is 1%.
· The interest rate differential is 3% - 1% = 2% in favor of the Euro.
What Happens When You Hold the Position Overnight?
Since you‘re buying EUR/USD (holding Euros and selling Dollars), you’ll earn the higher Euro interest rate but pay the lower US Dollar interest rate. The net effect is a positive swap.
Swap Calculation:
Assume your broker charges or credits swaps in pips per day:
· Positive Swap Rate: +0.5 pips per night for EUR/USD
· Position Size: 1 lot (100,000 units)
· Pip Value for EUR/USD: $10 per pip (for 1 lot)
The swap credit would be calculated as follows:
· Swap Credit = 0.5 pips × $10 = $5 per night
If you hold the position for 5 days, youd earn:
· 5 × 5 = 25 in positive swaps
Triple Swap on Wednesday:
On Wednesdays, brokers apply a triple swap to account for the weekend. If you hold the position overnight on Wednesday, youd earn:
·5 × 3 = 15 instead of $5
This example illustrates how swaps work and how they can either benefit or cost you depending on the direction of your trade and the interest rate differential.
Swap Rates in MetaTrader 4 & MetaTrader 5
MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are popular trading platforms that provide easy access to swap rates for forex currency pairs. Understanding how to locate and interpret these rates is essential for managing your trading costs.
Swap rates in MT4/MT5 are displayed in two main places:
Market Watch Window
Open the Market Watch window (press 'Ctrl + M' if it‘s not visible). Right-click on the currency pair you’re interested in and select “Symbols” or “Specification” (depending on your platform version). Then a detailed window will open, showing the Long Swap and Short Swap rates for the selected currency pair.
Trade Terminal or Order Window
When placing a trade, click on the currency pair and select New Order. In the order window, look for the swap rates listed under the currency pair details. These rates are usually expressed in pips or monetary terms.
Swap rates in MT4/MT5 are typically shown as follows:
· Long Swap: Swap rate applied when you buy (go long) the currency pair
· Short Swap: Swap rate applied when you sell (go short) the currency pair
These rates can be displayed in:
·Pips: For example, +0.5 pips or -3 pips
· Monetary Value: For example, +$5 or -$10 per night for a standard lot
Example of Swap Rates in MT4/MT5
Let‘s say you’re trading EUR/USD and check the swap rates in MT4/MT5:
· Long Swap: -3.2 pips (negative swap for buying EUR/USD)
· Short Swap: +1.8 pips (positive swap for selling EUR/USD)
This means:
· If you buy EUR/USD, youll pay 3.2 pips per night as a swap.
· If you sell EUR/USD, youll earn 1.8 pips per night as a swap.
Tips for Using Swap Rates in MT4/MT5
· Check Before Trading: Always review the swap rates before opening a trade, especially if you plan to hold positions overnight.
· Use Alerts: Some MT4/MT5 tools allow you to set alerts for high swap costs.
· Compare Brokers: Swap rates vary between brokers, so compare them to find the most cost-effective option.
Forex Swap Trading Strategies
Forex swaps can be used strategically to either reduce trading costs or generate additional income. Below are some common strategies that traders use to take advantage of swap rates in forex trading:
① Carry Trade Strategy
The carry trade is a popular strategy where traders aim to profit from the interest rate differential between two currencies. By buying a high-interest-rate currency and selling a low-interest-rate currency, traders earn positive swaps (interest payments) for holding the position overnight.
· Identify currency pairs with a significant interest rate differential (e.g., AUD/JPY, NZD/JPY).
· Buy the currency with the higher interest rate and sell the one with the lower interest rate.
· Hold the position for an extended period to accumulate positive swaps.
e.g. If you buy AUD/JPY, where AUD has a higher interest rate than JPY, youll earn a positive swap each night. Over time, these small daily earnings can add up significantly.
Note: While carry trades can be profitable, they are exposed to exchange rate fluctuations. A sudden drop in the value of the high-interest-rate currency can outweigh the benefits of the positive swap.
② Hedging with Swaps
Some advanced traders use hedging strategies to offset swap costs while maintaining exposure to the market. It is more complex and typically used by experienced traders.
· Open both a long and a short position on the same currency pair.
· Use the positive swap from one position to offset the negative swap from the other.
e.g. If youre long on EUR/USD (paying a negative swap) and simultaneously short on the same pair (earning a positive swap), the two swaps may cancel each other out.
③ Long-Term Position Holding with Positive Swaps
Traders who focus on long-term trends cancombine their trading strategy with positive swaps to enhance profitability.
· Identify long-term trends in currency pairs with positive swaps.
· Enter trades in the direction of the trend and hold the position for weeks or months, earning swaps along the way.
e.g. If youre bullish on NZD/JPY and the pair offers a positive swap, holding a long position allows you to benefit from both price appreciation and daily interest earnings.
By incorporating these strategies into your trading plan, you can effectively manage swap costs or even turn swaps into a source of additional income. Always remember to balance swap considerations with overall market risk and trading goals.
Brokers for Swap-Free Trading
Swap-free trading is very popular among traders seeking Shariah-compliant accounts or those aiming to avoid overnight interest charges. Some brokers stand out for their tailored solutions, competitive conditions, and adaptability to diverse trading styles. These brokers not only accommodate religious or strategic requirements but also deliver robust platforms, tight spreads, and regulatory credibility. We have BlackBull, XM, RoboForex, HFM, and Exness on the list.
For detailed info, please refer to Best Swap Free Account Forex Brokers (2025) (https://www.wikifx.com/en/best/best-swap-free-account-forex-brokers.html).
Final Takeaway
Whether you‘re holding positions overnight, hedging long-term strategies, or adhering to ethical principles with swap-free accounts, understanding swaps ensures you’re never caught off guard by hidden costs.
Remember:
· Swaps matter: They can chip away at profits or add up as a cost over time, especially for leveraged trades.
· Knowledge is control: Use tools like MetaTrader to monitor rates, calculate swaps in advance, and adapt your strategy.
· Choose wisely: Opt for brokers like BlackBull, XM, or Exness if swap-free trading aligns with your goals.
Ultimately, swaps are a small piece of forex, but managing them smartly can make a big difference. Always stay curious and informed.
Forex Swap Knowledge Questions and Answers
What is a swap in forex?
A fee/credit for holding positions overnight, based on interest rate differences between currencies.
Is swap good or bad in forex?
If earn positive swaps (e.g., long AUD/JPY), then the swap is good; if pay negative swaps (e.g., short TRY/JPY), then the swap is bad.
Can I make money on swaps in forex?
Yes. You can make money via carry trades (buy high-interest currencies, sell low-interest ones).
Does swap affect short-term or long-term traders more?
Long-term traders—swaps accumulate daily. Short-term traders often ignore them.
Where can I see swap rates of forex currency pairs?
On the MT4 or MT5 platform, you can right-click the symbol → “Specification”. Also, you can see swap rates on the broker's website under “Contract Details”.
How do you reduce swap in forex?
· Use swap-free accounts (Islamic accounts).
· Close trades before 5 PM ET (rollover time).
· Avoid holding high-swap pairs (e.g., TRY/JPY) overnight.
What is a swap-free (Islamic) account?
The swap-fee (Islamic) account has no overnight swaps (compliant with Islamic finance) but may have wider spreads or fees.
