When you trade in the Forex market, there is an important detail to consider if you keep positions open overnight: swap. Here is a clear explanation of how it works and how you can calculate it.
Why do interest rates differ between currencies?
Each country has its own central bank, which sets an official key interest rate for its currency. These rates can vary significantly from one country to another. For example, the interest rate on the US dollar (USD) is often much higher than that of the Japanese yen (JPY).
What happens when you buy or sell currencies?
When you make a Forex transaction, such as trading USD/JPY, you are essentially receiving one currency while giving away another:
If you buy USD/JPY (long position): You are receiving a currency with a higher interest rate and paying for one with a lower rate. The broker may pay you interest daily for holding that position.
If you sell USD/JPY (short position): You are receiving a currency with a lower interest rate and paying for one with a higher rate. You will pay interest to the broker each day the position remains open.
What factors influence swap values?
Swaps are not calculated randomly. They are based on:
The difference in interest rates between the two currencies
The type of position opened (long or short)
The lot size and the number of days the trade remains open
How do you calculate swap in practice?
Let us assume you have an open EUR/USD trade with a volume of 0.5 lots. To calculate the swap for holding 0.5 lots overnight, use the following formula:
-0.082 (swap for minimum lot size) * 0.5 (trade volume) / 0.01 (minimum lot size) = -4.1
So, the overnight swap for holding a 0.5 lot EUR/USD position would be -4.1 USD.
How do you check the swap for a specific instrument in MetaTrader terminals?
Desktop
In the terminal, right-click on the instrument in the "Market Watch" window and select "Specification".
Mobile app
Tap on the instrument and select "Properties".
