What is a Swap and how much profit can it take from you?

If you think trading costs only include the Spread and Commission, you might be missing an important factor: Swap — the hidden cost that can eat into your profits daily without you realizing. For traders holding positions for weeks or months, not understanding what Swap is means fighting blindly. Let’s see what this hidden cost really looks like.

Hidden Costs Often Overlooked by Beginners

Imagine you make a $50 profit from buying EUR/USD, but you hold the position for 3 nights (including the Wednesday 3-Day Swap), with a negative Swap of -$26. Your net profit is only $24. This doesn’t include the Spread at opening and closing.

What’s interesting is that Swap is calculated based on the full value of the position, not just the margin you put up. For example, if you buy 1 Lot EUR/USD (100,000 units) with 1:100 leverage, you might only need to put up $1,090 margin. But the Swap is calculated on the total value of $109,000, meaning the Swap loss is 0.8% of your margin per night — which could lead to margin calls.

Where Do Interest Rate Differentials Come From?

Swap in technical terms is “Overnight Interest” or “Rollover Fee” — in other words, the interest paid or earned for holding a position overnight.

When you trade EUR/USD, you’re effectively “borrowing” one currency to “buy” the other. Each currency has its own interest rate set by its central bank — USD by the FED, EUR by the ECB.

Here’s a clear example:

• EUR interest rate: 4.0% per year
• USD interest rate: 5.0% per year

If you Buy EUR/USD (buy EUR, borrow USD):

• You earn EUR interest: +4.0%
• You pay USD interest: -5.0%
• Net difference: -1.0% (per year) → Swap will be negative

If you Sell EUR/USD (borrow EUR, hold USD):

• You pay EUR interest: -4.0%
• You earn USD interest: +5.0%
• Net difference: +1.0% (per year) → Swap will be positive

In reality, brokers act as middlemen and add their own handling fees. So, even if theoretically selling EUR/USD should give a positive Swap, the broker might deduct their fee, leaving you with +0.2% or even turning it negative.

Check Swap Rates Before Trading: It’s Not Optional

On MT4/MT5, you can view this by:

1. Opening Market Watch
2. Right-clicking the asset (e.g., EUR/USD)
3. Selecting Specification
4. Looking for “Swap Long” and “Swap Short”

On Mitrade, it’s simpler:

1. Select the asset
2. Find the “Introduction” section on the right
3. Scroll to “Overnight Fees”

Mitrade shows the rate as a percentage per night, e.g., -0.015%, which makes calculations easier.

How to Calculate Swap Correctly: Simple Formula

Method 1: If your broker states the rate as % per night (like Mitrade)

Formula: Swap (in money) = Total position value × Swap rate %

Example:

• Buy 1 Lot EUR/USD (100,000 units)
• Current price: 1.0900
• Overnight fee: -0.008% per night

Step 1: Calculate total value = 100,000 × 1.0900 = $109,000
Step 2: Swap = 109,000 × (-0.008 ÷ 100) = -$8.72

For a 3-day Wednesday swap (3 days): -$8.72 × 3 = -$26.16

Method 2: If the broker shows points (like MT4)

Formula: Swap (in money) = Swap points × value per point

For EUR/USD 1 Lot: 1 Pip (10 points) = $10 USD, so 1 point = $1 USD

If Swap Long = -8.5 points → -8.5 × $1 = -$8.5 per night

The 3-Day Swap: Not a Big Deal

This is where many beginners get confused. Usually, Swap is calculated daily, but there’s a 3x rate on certain nights.

Why? Because the Forex market closes on Saturday and Sunday, but interest continues to accrue. Brokers combine the interest for Saturday, Sunday, and sometimes Friday into the Wednesday night swap.

Technically, since Forex settlement is T+2 (trade plus 2 days), holding a position from Wednesday to Thursday involves a weekend, so the broker accounts for 3 days’ interest in one calculation — typically on Wednesday night.

Most 3-Day Swaps occur on Wednesday nights, but check with your broker for certainty.

Positive vs Negative Swap: Different Sides of the Same Coin

Negative Swap (you pay):

• Most common
• Happens when the interest rate of the “bought” currency is lower than the “borrowed” currency
• Reduces your profit daily

Positive Swap (you earn):

• When the “bought” currency has a higher interest rate than the “borrowed” one
• Even if the system favors paying, brokers may deduct their fees, so the actual positive swap might be small (e.g., +0.2%) or even turn negative.

Carry Trade: Earning from Swap

Some traders aim to profit mainly from positive Swap rather than price movements.

Concept: Borrow a low-interest currency (like JPY) to buy a high-interest currency (like MXN or TRY).

Example: Buy AUD/JPY

• Buy AUD (high interest ~4%)
• Borrow JPY (low interest ~0%)
• Annual interest differential: ~4%
• If Swap Long is positive, you earn interest every night

Risk: If AUD/JPY drops sharply, the loss from price movement can outweigh the interest gains over a year.

Swap-Free Accounts: No Swap at All

Many brokers offer Swap-Free Accounts (Islamic accounts), based on religious principles prohibiting interest.

Advantages:

• No Swap regardless of holding period
• Suitable for Position and Swing traders

Disadvantages:

• Wider spreads
• Fixed management fees if holding beyond certain days

Summary: Swap Is Not a Small Matter

What is Swap? It’s the cost of holding a position overnight, based on the interest rate differential between currencies, plus broker fees.

Impact depends on:

• Day traders: negligible (close before swap is calculated)
• Swing traders: should consider it in profit planning
• Position traders: must plan for positive or negative swaps, or choose Swap-Free accounts

Choosing a transparent broker with clear fee display helps you plan better, avoiding surprises from hidden costs.