Forex Academy:
Middle School
5 minutes
Lesson 11
Overnight interest for holding positions – Swap?
- What is a swap fee?
- When is the swap fee applied?
- Method for checking swap fees
What is a swap fee?
Swap fee is the interest you receive or pay when you hold a position overnight.
If you do not hold a position overnight, there will be no swap fees.
In daily life, you must have heard about “earning interest” and “paying interest”!
For example:
・When you have some money and you deposit it in a bank, you will earn interest on that amount.
・When you borrow money , you have to pay interest on the borrowed amount.
In Forex, when you place a Buy order for EUR/USD, it means you are exchanging (selling) USD to get (buying) EUR .
Because in Forex, you only trade the exchange rate of currency pairs, you do not own the currencies.
So your EUR/USD Buy order can be understood as borrowing USD to buy EUR.
Therefore, you will incur USD interest and earn EUR interest if you hold a EUR/USD Buy position overnight.
Swap = EUR Interest Rate – USD Interest Rate
Similarly, when you place a Sell order for EUR/USD, it means
you are exchanging (selling) EUR for (buying) USD.
So your EUR/USD Sell order can be understood as
Borrowing EUR to sell and buy USD.
Therefore, you will incur EUR interest and earn USD interest if you hold a EUR/USD Sell position overnight.
Swap = USD interest rate – EUR interest rate
After that, a swap fee will be added/deducted from your account balance.
When is the swap fee applied?
Swap fee will be charged if you place an order and do not close it before 22:00 GMT on the next day.
After that, a swap fee will be added/deducted from your account balance.
Note:
Daylight Saving Time (Summer Time):
From the 2nd Sunday of March to the 1st Sunday of November,
swap fees will be charged if you do not close your order.
before 21:00 GMT, instead of 22:00 GMT same day.
Let’s take a look at the following examples!
Case 1: You place a EUR/USD buy order on Thursday, and by 22:00 GMT on Thursday,
you still haven’t closed the order, you will be charged a one-time swap fee.
Case 2: If you place a EUR/USD buy order before 22:00 GMT Thursday,
and by 22:00 GMT on Monday next week, you still haven’t closed the order,
if you follow the calculation in case 1, you will be charged 5 times the swap fee.
However, the swap fees for Saturday and Sunday will be charged on 22:00 GMT Monday,
so in this case you will only be charged 3 swaps instead of 5.
Case 3: You place a EUR/USD buy order on Monday,
and by 22:00 GMT Wednesday, you still haven’t closed the order.
If you follow the calculation in case 1, you will be charged swap fees 3 times.
However, Wednesday’s swap fee will be charged 3 times to compensate for Saturday and Sunday,
so in this case, you will be charged 5 times the swap fee instead of 3 times.
If by 22:00 GMT Wednesday, you have not closed the position, you will be charged 3 times (X3) swap fee to compensate for the 2 weekend days, Saturday and Sunday.
If by 22:00 GMT on the remaining days of the week, you have not closed the order, you will be charged 1 time swap fee.
Note:
①
For BTCUSD and CFD , if you have not closed your order by 22:00 GMT on Friday (instead of Wdnesday),
you will be charged 3 times (3X) swap fee.
②
Daylight Saving Time (Summer Time):
From the 2nd Sunday of March to the 1st Sunday of November,
swap fees will be charged if you do not close your position
before 21:00 GMT, instead of 22:00 GMT same day
In order to trade and avoid swap fees, please close your trades before of 22:00 GMT same day!
Swap fee checking method
Case 1
With existing trade orders, you can check swap fees on the MetaTrader 4 trading platform.
Step 1: Tap the icon
Step 2 : Tap the transaction order you have placed.
Step 3 : Check swap fee
- ・ In case of 0, swap fee is not calculated
- ・ In case of positive number (+), you will receive interest
- ・ In case of negative number (-), you have to pay interest.
Step 1: Tap the icon
Step 2 : Click on the transaction order you have placed.
Step 3 : Check swap fee
- ・ In case of 0, swap fee is not calculated
- ・ In case of positive number (+), you will receive interest
- ・ In case of negative number (-), you have to pay interest.
Step 1 : Select the Trade tab in the Terminal window located at the bottom of the platform interface screen.
(Press Ctrl + T if you don’t see the Terminal window on your screen)
Step 2 : Check your open orders (orders above the account balance bar)
- ・ In case of 0, swap fee is not calculated
- ・ In case of positive number (+), you will receive interest
- ・ In case of negative number (-), you have to pay interest.
Case 2
Before placing an order, you can check the swap fee on Hirose’s website.
Swap fees will be updated by us every day.
How to check Swap fees on Hirose website
The lesson on “Overnight interest for holding positions – Swap?” ends here.
Let’s check to see if you understand the lesson!
The “Middle School” level lesson series ends here!
We will continue to guide you on how to make more profits in the “High School” level lesson series.
Please continue to follow.