Swap (swap or fee for transferring a position).
No matter how brokers claim that the only commission on the foreign exchange market is the Forex spread, in addition there is also a fee for transferring positions to the next day. But unlike a spread, this type of commission can be either negative or positive.
Swap - the difference between the rates on the currencies forming the currency pair, is taken only if the position is transferred to the next day and if the interest on the loan is greater than the accrual on the deposit. If you transfer a position from Friday to Monday, this fee will be charged triple.
The essence of this concept is that when trading currency you use two monetary units, one of which you have, and the other you have to borrow.
Therefore, for the first, you are charged interest, and for the second, a loan fee. The direction of transactions also plays an important role. If the loan rate is higher than the deposit rate, the swap is negative and you pay the broker to roll over the position.
But sometimes the opposite situation occurs in which the deposit rate exceeds the fee on borrowed funds and you are already charged a reward. strategy “Karry trade” has even appeared , which is based on the use of currency pairs with a positive swap.
True, its use requires quite a substantial capital and large leverage, as well as a relatively calm market. The easiest way to understand how Swap is calculated is on a specific currency pair.
Swap calculation.
For the calculation, we will take one of the most popular currency pairs on Forex, EURUSD, since the quoted currency here is the American dollar and therefore the cost of a point is 10 dollars. Today, the difference in rates between these for short positions is approximately -0.9, and for long ones +0.4, we postpone a transaction of 1 Forex lot .
The current exchange rate of the euro to the US dollar is 1.30. Calculations are made using the formula (transaction volume x (swap size) / 100) x (current rate) / 365, after which we simply multiply the resulting value by the number of days of the transaction duration.
A sell trade on EURUSD
(100,000 x (-0.9)/100) x 1.30/365 = - US$3.20 per day will be debited from your account.
Trade to buy EURUSD
(100,000 x 0.04/100) x 1.3/365 = +1.42 US dollars, bonus to the trader’s account.
In most specifications, brokers already indicate the size of the difference in rates depending on the direction of the transaction, and all you have to do is substitute the data into the above formula.
Forex swap has virtually no effect on the financial result of the transaction, as its value is quite small in relation to trading volumes. The only exception is some currency pairs, where the Swap size can be up to $50 per lot.