Overnight financing (swap), and why Wednesday is charged three times

Overnight financing — swap, or rollover — is the one charge in forex that is taken while you
do nothing at all. It does not appear in a position’s running profit and loss; it is quietly
added to the balance each night. And every Wednesday it is multiplied by three.

1. Where swap comes from

Every pair is two currencies carrying two different interest rates. Buying EUR/USD means, in
substance, holding euros and borrowing dollars. The difference between those rates
is credited or debited to your account each night.

The formula brokers use:

Swap = (Base rate − Quote rate) ÷ 365 × Contract value × Exchange rate + Broker markup

The part to remember: the broker’s
markup is always there. That is why on most pairs
the negative swap on one side is bigger than the positive swap on the other — the broker keeps the
difference.

2. Why Wednesday is charged three times

This detail surprises people reading their statement.
The currency market settles at T+2: a
trade today settles two business days later.

A position opened Wednesday settles Friday. One opened Thursday settles the following Monday —
skipping Saturday and Sunday. So Wednesday’s swap has to carry the weekend with it, and the broker
charges it three times over in one go.

In real numbers: if your swap is −$3.80 per lot per night, Wednesday night alone
is −$11.40. A position with a positive swap of +$5.50 is credited +$16.50 that same
night.

3. The calculation almost nobody runs

Say you hold 2 lots at −$4 per lot per night, for an average of ten days:

• 7 ordinary nights: 7 × 2 × 4 = $56
• 1 Wednesday (×3): 3 × 2 × 4 = $24
• Total: $80 on one position

Take four such trades a month and overnight financing runs to $320 a month —
before spread or commission. On many small accounts this is the largest single cost, and the one its
owner has never counted.

4. Where swap bites hardest

• Gold (XAU/USD) — usually negative in both directions, because gold pays no
  interest. Holding gold for days almost always costs.
• Crosses involving a low-rate currency — a wide differential means one side is
  charged heavily.
• Indices and share CFDs — usually a
  financing charge of a reference rate plus a
  margin.

5. Four ways to reduce it

• Close before the daily rollover — typically 21:00 UTC. Nothing held past it, no
  swap.
• Avoid opening large positions on Wednesday if you intend to hold overnight, or
  accept paying triple.
• Read the swap table before a multi-day trade. Every broker publishes it in the
  contract specification, and the numbers differ considerably between them.
• Consider a swap-free account
  if your strategy holds for days — but read the terms, because these usually carry an administration
  fee instead.

6. Swap is not the only charge

A position costs three things: the spread on entry,
commission on an ECN account, and swap if held overnight. Beginners
usually look only at the first.

Of the three, spread and commission are what fund the introducing broker’s commission — and so
the part a rebate hands back. Swap is not, so the only way to reduce it is to manage how long you
hold.

Sources

• FP Markets — How to Calculate Forex Rollover Swaps and Rates
• VT Markets — Rollover Fees Explained
• B2PRIME — Complete Guide to Forex Rollover Rates Calculation

This article is for information only and is not investment advice. Swap rates are published by the broker and move with market interest rates — check the table for the broker you use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.