A Swap in trading refers to the interest that you either earn or pay on a trade that you keep open overnight. There are two types of swaps:
- Swap long – used when keeping long positions open overnight
- Swap short – used when keeping short positions open overnight
Swaps are necessary because when trading with leverage you are effectively borrowing money to open trade positions. When a position is left open for more than a day, interest must be paid on the money you have borrowed. Swaps are therefore essentially interest rates for leveraged funds.
Triple swap rates are charged on trades held from Wednesday to Thursday. The reason for this is that spot contracts have a two-day settlement period. For example, a spot Forex contract that occurred on Monday settles on Wednesday, a trade that occurred on Tuesday settles on Thursday, a trade that occurred on Wednesday settles on Friday, but a trade that occurred on Thursday settles on the following Monday. In this example, the trade that occurred on Thursday rolled through the weekend (because banks are closed on Saturday and Sunday).
A Swap Rate is an overnight or rollover interest (earned or paid) for holding positions overnight in foreign exchange trading.
Swap calculation
Axi applies swaps daily between 23:59:30 - 23:59:59 MT4 Server time (5 PM New York close). For certain currency pairs, triple daily swaps are applied at the end of Wednesday or Thursday.
Here is an example using the EURUSD currency pair:
- If the trader holds 1 standard lot long position overnight, they will pay USD 6.5 in interest.
- If the trader holds 1 standard lot short position overnight, they will earn USD 2.55 in interest.