Swop: The hidden cost that eats into the trader's profit

Successful traders will tell you that the key factor in trading isn’t just predicting the price direction. In fact, many unseen costs quietly eat into your profits. One of these is swap — the fee incurred from holding a position overnight, which many beginner traders overlook. This is why sometimes you see a profit, but after including swap costs, your gains are just a fraction.

How Swap Affects Profit and Loss

Imagine: you buy EUR/USD and make a profit of $50 from the price difference. But if you hold that position for 3 nights and face a negative swap of about -$25 per night, your net profit becomes 50 - (25 × 3) = -$25. That’s a loss, even though your initial prediction was correct.

This risk can turn into a disaster over several months, especially for traders holding positions for weeks or months.

How Swap Works: The Always-Existing Interest Differential

Swap isn’t just a fee set by brokers to extract extra charges. It originates from real-world finance — the interest rate differential.

When you trade EUR/USD, you’re effectively “borrowing” one currency and “buying” another.

• If you Buy EUR/USD: you borrow USD (interest rate 5.0% per year, set by FED) and buy EUR (interest rate 4.0% per year, set by ECB).
  • Net differential: 4.0% - 5.0% = -1.0% per year → you pay swap.
• If you Sell EUR/USD: you borrow EUR and hold USD.
  • Net differential: 5.0% - 4.0% = +1.0% per year → you receive swap.

However, brokers don’t offer the “real” rates. They add their own “markup,” making the effective swap rate different from the actual interest differential.
For example, even if long EUR/USD should be charged -1.0% annually, the broker might set it at -3.0% (adding their markup).

This is why swap long and swap short are never equal — each side is adjusted by different amounts.

Types of Swap and How to Find the Data

Type 1: Positive vs Negative Swap

• Positive Swap (+): You earn money every night you hold the position (rare but possible).
• Negative Swap (-): You pay money every night you hold the position (more common).

Type 2: 3-Day Swap (Triple Swap)

This is a “trap” many traders don’t realize. Forex markets are closed on Saturday-Sunday, but interest accrues daily. Some brokers combine the weekend two days into one, often on Wednesday night, so traders holding positions over Thursday face triple swap charges.

How to Find Swap Data

On MT4/MT5 platforms:

1. Go to Market Watch
2. Right-click on the asset → Select Specification
3. Look for “Swap Long” and “Swap Short” (in Points)

On Mitrade platform:

1. Select the asset
2. On the right, go to “Overview”
3. Find “Overnight Fee” (shown as % per night)

Mitrade is an example of a broker transparent about these fees, helping you plan your trades better.

How to Calculate Swap and Manage Costs

Method 1: From Points (MT4/MT5)

Formula:
Swap (USD) = (Swap Rate in Points) × (Value of 1 Point)

Example:

• Buy 1 Lot EUR/USD, Swap Long = -8.5 Points
• For EUR/USD: 1 Point = $1
• Swap = -8.5 × 1 = -8.5 USD per night
• For 3 nights: -8.5 × 3 = -25.5 USD

Method 2: From Percentage (Mitrade)

Formula:
Swap (USD) = (Position Size) × (Swap % ÷ 100)

Example:

• Buy 1 Lot EUR/USD at 1.0900, Swap Long = -0.008% per night
• Position value = 1 Lot × 100,000 units × 1.0900 = 109,000 USD
• Swap = 109,000 × (-0.008 ÷ 100) = -8.72 USD per night
• For 3 nights: -8.72 × 3 = -26.16 USD

Important: Swap is calculated based on the full position value (e.g., 109,000 USD), not just the margin (which might be only 1,000 USD). High leverage can cause swap costs to eat into your margin and potentially trigger a margin call.

Carry Trade: Using Positive Swap to Your Advantage

Carry Trade involves borrowing in low-interest currencies (like JPY or CHF) to buy high-interest currencies (like MXN or TRY).
If the swap for long positions is positive, you earn money every night you hold the position.

Example: Buy AUD/JPY

• AUD has high interest (~3-4%)
• JPY has very low interest (~0%)
• If the swap long is positive, you earn interest daily.

Warning: It’s not free money. If the exchange rate moves against you significantly, the loss from currency depreciation can outweigh the interest gains.

Swap-Free Accounts:
Many brokers offer “Islamic” or swap-free accounts, which do not charge swap fees. These are suitable for swing or position traders holding for weeks or months. The trade-off might be wider spreads or other fees.

Managing Swap and Choosing the Right Platform

Different traders are affected differently:

• Scalpers (minutes to hours): Usually unaffected, as they close positions before swaps accrue.
• Swing Traders (days to a week): Might consider swap-positive pairs or accounts.
• Position Traders (weeks/months): Must account for swap costs or use swap-free accounts.

Choosing a transparent broker with clear swap info (like Mitrade, showing % per night) helps you plan better.

Summary: Swap Is More Than Just a Fee

Swap is an implicit cost affecting your profit/loss. It depends on your trading style. Some see it as a “foe” that erodes gains; others leverage it through Carry Trade strategies.

The key is understanding it first — know the swap rate, when it occurs, and how much it costs. Proper planning prevents hidden costs from undermining your trading plan.

Investing involves risks and may not be suitable for everyone.