Having embarked on the forex path, you must determine to learn and diligently learn even the smallest details. Swap fees are the details. Although it is not too complicated or confusing, swap fees still play a very important role if the trader is really serious about making a profit and enduring on this brutal battlefield.
A trade is profitable but our account is negative? Why is that? The reason may be that the trader is deducting the swap fee from the exchange. So what is the swap fee? Why sometimes our account has profit, but not enough to deduct expenses, so our account will turn red instead of green. So don’t overlook even the smallest detail! What is the swap fee?
In this article, Vnrebates we introduce to you the following basic contents about this type of overnight fee in forex:
1. What is the swap fee? 2. Specific examples of swap fees3. What type of transaction has a swap fee?4. Find out about swap charge times5. How to check the swap fee?6. Two ways to take advantage of swaps for traders to maximize their advantages
1. What is the swap fee?
Explain in a simple way.
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Swap (or rollover or swap) is a term in the financial trading world for the amount of money you pay/or receive for holding an position overnight. It can also be understood as the interest rate difference between the two currencies being traded.
When looking at a forex order, the trader borrows one currency to buy another. That is, each currency will have a different interest rate (issued by that country’s central bank). When a trade is held overnight (with a position or swing trader), traders must consider this amount for the exchange.
So why is there a swap fee? It is due to the difference in interest rates between 2 currencies in a currency pair that traders trade. You simply do not directly own the currency for that transaction, but must “borrow” to execute the position. For example, if we buy EURUSD, we are using USD borrowed money to buy EUR. Through this, traders pay interest on the USD they borrow, and earn interest on the EUR they buy.
If the interest rate of the currency pair you buy is higher than the interest rate of the currency pair you sell, you will receive an overnight fee, depending on the regulations of each exchange. If the interest rate of the currency pair you buy is lower than the interest rate of the currency pair you sell, you will have to pay the exchange back that fee.
Explain in detail for those who want to understand more deeply what the swap fee is.
Swaps are the swap fees that traders pay or enjoy for a transaction held overnight. The reason there is a swap fee is due to the difference in interest rates between the two currencies in the currency pair that the trader trades. Continuing to take the example of the EURUSD pair, the interest rates of the EUR and the USD will not have the same value.
Thus, in some cases traders have to pay overnight fees to the bank, but in other cases we enjoy positive swaps, depending on the difference in interest rates of the currency pair (or commodity) that the trader trades. Translate.
However, whether we have to pay swap or enjoy positive swap, we always have to pay an extra fee for the forex broker. Therefore, the total negative swap that a trader has to pay when buying EURUSD, for example, will always be higher than the total positive swap that the trader receives when selling EURUSD. What is the swap fee?
In forex trading, the Swap fee is a combination of a forex broker and a bank (who is a partner of the exchange) to balance the calculation of Swap for investors. Therefore, when calculating swap fees, traders always have to pay a certain extra fee for the exchange, even if it is very small.
Here is a reference for some currency pairs with extremely high swap fees in the forex market: AUD NZD, GBP CHF, USD CNH, USD RUB, USD MXN:
2. Specific examples of how to calculate overnight fees in forex
For example, Trader has an account of $1,000. That trader buys 1 lot of AUDUSD.
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The swap fee of this pair is currently 3.11, which means that if you buy this pair and hold it overnight, the trader will get $3.11.
Why did this happen? What is the swap fee?
Because when buying 1 lot of AUDUSD, we are buying 100.00 AUD, with the current AUDUSD exchange rate at 0.8950, we are borrowing from the bank which is 89.50 USD. When this order is held overnight, the trader will have to pay interest on this $89.50 loan. However, at the same time, the trader is also depositing in the account 100.00 AUD, this amount, the bank is paying interest back to the trader. When we add the above 2 accounts 100.00 and 89.50, the swap fee will be $3.11 overnight.
Similarly in the example you will see if you sell AUDUSD pair you will have to pay a fee if you hold an overnight position which is -7.99$ what is the swap fee
Comparing the buy and sell swaps of the same AUDUSD currency pair as above, the trader will see that the part he receives will always be smaller than the part he pays if the trader holds overnight and simultaneously two opposing orders. That difference is due to the surcharge that the broker collects to compensate for the broker’s brokerage activities.
3. What type of transaction has a swap fee?
Any two-way traded market that involves borrowing will incur an overnight fee. So Swap exists not only for currency pairs, but it is also available in currency related CFD products such as metals, gold, oil, etc. What is the swap fee?
In addition, Swap also appears in trading stock CFDs, stock indices, etc.
4. Find out about swap charge times
The time to calculate the swap is around midnight. The exact time depends on the regulations of each exchange, but usually falls between 22:00 GMT and 24h:00 GMT. So if you are interested in swap fees when trading, you should read the rules of the exchange, or ask the support staff if you plan to invest for a long time and hold orders for many days.
Why we advise you to find out this, because the interest rate for calculating swap fees is not fixed between exchanges, but varies depending on the policy of each exchange to encourage customers. If you invest long term on a Weekly chart, holding positions on a weekly or monthly basis, then you need to calculate in advance whether the profit will be enough to cover the overnight holding fee.
Swap fees are charged for all 7 days of the week, but because the market is closed for two weekends, the swaps of these two days will be accumulated on the following Wednesday (this is an international regulation). So if we pay attention, we will see on Wednesdays that the swap is very high. That is due to the accumulation of all 3 days: Saturday, Sunday and Wednesday.
5. How to check the swap fee?
Please open the software MT4, or MT5. What is the swap fee?
Click the Market Watch button in the upper left corner of the screen, then select any currency pair and right click. Continue to select item Specification.
Here it will display the parameters of Swap long and Swap short. In which, Long means to buy and Short means to sell. As such, you will easily find the overnight holding cost parameter for your trade.
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6. Two ways to take advantage of swaps for traders to maximize their advantages
If you are reading as a surfer, or scalping then you probably won’t need to care too much about this swap fee, because the orders are executed and closed within the day. However, if we trade the long term, or position trading then you should definitely take advantage of the swap fee because you will hold the position for months.
Traders should not ignore or disregard this, because sometimes many forex pairs have very high swap fees. Typically gold or some foreign currency pairs like EURZAR for example. Swap fees can be up to several tens or hundreds of USD/lot. This is a big gain or a big loss if traders are not paying attention to these issues!
Traders can take advantage of this, the X3 swap on the 4th day will give you a decent amount if you trade the currency pairs with positive swap, however, you need to remember the exchanges at that time. At the new opening point, the spread will be extremely wide (a large distance), so when determining to stay overnight, set a stop loss limit a bit to avoid being scanned when the market fluctuates!
So if you pay attention to take advantage, it will help traders to thoroughly optimize their transactions. Specifically:
Choose to trade currency pairs with positive swap Take advantage of x3 swap every WednesdayAlways see the right swap rate if you intend to leave positions overnight
Good luck with your trading!