What is the swap fee? The hidden part every time you hold an order

If you’re a trader, you’ve probably wondered why your portfolio balance sometimes decreases when holding overnight positions—that’s Swap fees, the cost often overlooked by beginners but quietly eating into your profits. Understanding it well can help you plan your trades more accurately.

Hidden Swap Costs in Trading

Swap fees are quite fascinating because sometimes you might profit from price movements but still lose money due to Swap charges from holding positions for a long time.

For short-term traders (Scalpers or Day Traders), it might not feel significant. But for those holding positions for weeks, months, or even years, these fees become as influential as price fluctuations. You might win a trade but lose because of Swap.

The Reason Behind Swap Fees

Swap is a fee for holding a position overnight, also called “Overnight Interest” or “Rollover Fee” in finance terms. Simply put, it’s similar to interest, but it arises from “borrowing” a currency or asset to hold across days.

Why is this fee necessary?

When trading EUR/USD, you’re doing something interesting: if you buy (go long), you’re “buying” euros and “borrowing” dollars to pay for that purchase. Both currencies have their own interest rates set by central banks.

The difference between the interest rates of the currency you’re buying and the one you’re borrowing is called the “Interest Rate Differential,” which is the root of Swap.

Example:

• EUR has an interest rate of 4.0% per year
• USD has an interest rate of 5.0% per year
• If you Buy EUR/USD (buy EUR, borrow USD): you earn 4.0% but pay 5.0% = net loss of 1.0% annually
• If you Sell EUR/USD (borrow EUR, hold USD): you pay 4.0% but earn 5.0% = net gain of 1.0% annually

However, there’s a catch—brokers add their own handling fees, so the actual Swap you pay is often higher than the theoretical rate, and the Swap you receive is usually lower.

How to check Swap rates before opening a position

Knowing the Swap rate before opening a trade is crucial. On MT4/MT5, right-click on the asset in Market Watch and select Specification—you’ll see “Swap Long” and “Swap Short.”

On newer platforms like Mitrade, this info is displayed more clearly, showing percentages per night (e.g., -0.008% per night), which is straightforward and easy to calculate.

How to calculate accurately

Once you understand what Swap is, let’s do some calculations.

Method 1: Using percentage (simplest)

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

Example:

• You buy 1 Lot EUR/USD (1 Lot = 100,000 units)
• Current price EUR/USD = 1.0900
• Swap Rate for Long = -0.008% per night

Calculation:

1. Total position value = 100,000 × 1.0900 = 109,000 USD
2. Swap per night = 109,000 × (-0.008 ÷ 100) = -8.72 USD

If it’s a Wednesday night (3-day swap), total = -8.72 × 3 = -26.16 USD

Key point: Swap is calculated based on the full position value (109,000 USD), not just the margin. If you’re using 1:100 leverage and have a margin of 1,090 USD, you’re paying -8.72 USD, which is about 0.8% of your margin per night. This explains why Swap can be a significant hidden cost.

Method 2: Using Points (in MT4/MT5)

Formula: Swap = (Points) × (Value per Point)

For EUR/USD, 1 Pip (10 Points) = $10, so 1 Point = $1.

If Swap Long = -8.5 Points → -8.5 USD per night.

Beware! The 3-Day Swap phenomenon

Many beginners overlook this. On Wednesdays, the Swap fee is often tripled.

Why? Because the Forex market closes on Saturday-Sunday, but interest rates don’t pause. Brokers consolidate the Swap for Saturday and Sunday into Wednesday’s rate, matching the T+2 settlement cycle.

Holding a position from Wednesday to Thursday incurs a 3x Swap fee.

Types of Swap traders need to manage

Positive Swap

Your lucky day—you earn money into your account when the asset’s interest rate is higher than the borrowed asset’s rate (after broker fees).

Negative Swap

More common—you’re paying out. Happens when the asset you borrow has a higher interest rate than the asset you buy.

Swap Long vs Swap Short

These rates are never equal. Swap Long applies to Buy orders; Swap Short applies to Sell orders.

Opportunity: Carry Trade Strategy

This is where Swap turns into a friend rather than foe. Carry Trade involves “borrowing” low-interest currencies (like JPY, CHF) and “buying” high-interest currencies (like AUD, MXN, TRY at times).

Example: Buy AUD/JPY to earn positive Swap daily.

The risk? If AUD/JPY drops sharply, the exchange loss could outweigh the gains from Swap over the year.

Alternative: Swap-Free (Islamic) Accounts

If you want to hold positions for days without worrying about Swap fees, many brokers like Mitrade offer Swap-Free accounts that don’t charge Swap at all.

The trade-off is that spreads might be wider or there may be rollover fees if you hold positions beyond certain limits.

Summary: Swap fees are not scary

Swap isn’t the enemy. With understanding and planning, you can manage it well. The key is knowing it exists.

• Scalpers: hardly need to worry; close positions quickly
• Swing Traders: include Swap in their plans; consider positive Swap assets or Swap-Free accounts
• Carry Traders: can use positive Swap as additional income if they plan carefully

Most importantly, choose a broker that is transparent about fees, clearly displays Swap info, and offers user-friendly platforms. These factors help prevent hidden costs from surprising you later.