Swap (swap or fee for transferring a position).
Despite brokers' insistence that the only commission on the foreign exchange market is the forex spread, there is also a fee for carrying positions overnight. Unlike the spread, however, this type of commission can be either negative or positive.
Swap – the difference between the rates of the currencies that make up the currency pair – is charged only if the position is rolled over overnight and if the interest on the loan is greater than the accrual on the deposit. If you roll over a position from Friday to Monday, this fee is tripled.
The essence of this concept is that when trading currencies, you use two currencies: one of which you own and the other you borrow. Therefore, you accrue interest on the first currency, while the second currency accrues a loan fee. The direction of the trades also plays a role.
If the loan rate is higher than the deposit rate, the swap is negative, and you pay the broker for rolling the position over. However, sometimes the opposite situation occurs, in which the deposit rate exceeds the borrowed funds fee, and you are already accruing a fee.
This latter situation has even given rise to a whole strategy called "Carry Trade ," which is based on using currency pairs with positive swaps. However, using this strategy requires a significant amount of capital and leverage, as well as a relatively calm market.
Understanding how swap is calculated is easiest with a specific currency pair.
Swap calculation.
For the calculation, we'll use EURUSD, one of the most popular forex currency pairs, since the quoted currency is the US dollar, meaning one pip is worth $10. Currently, the difference in rates between these two pairs is approximately -0.9 for short positions and +0.4 for long positions. We'll roll over a 1- lot forex . The current euro to US dollar exchange rate is 1.30.
The calculation is based on the formula (trade volume x (swap size) / 100) x (current rate) / 365, then simply multiply the resulting value by the number of days the trade lasts.
A EURUSD sell trade
(100,000 x (-0.9)/100) x 1.30/365 = -3.20 US dollars per day will be debited from your account.
A buy trade on EURUSD
(100,000 x 0.04/100) x 1.3/365 = +1.42 USD, bonus to the trader's account.
Most brokers already specify the difference in rates depending on the trade direction, so all you have to do is plug the data into the formula above.
Forex swaps have virtually no impact on the financial outcome of a trade, as their value is relatively small relative to trading volumes. The only exception is certain currency pairs, where the swap size can be up to $50 per lot.
