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?
- How can I check swap fees?
What is a swap fee?
A swap fee is the interest you either receive or pay when you hold a position overnight.
If you do not hold a position overnight, no swap fees will be applied.
In daily life, you’ve probably heard about “earning interest” and “paying interest”!
For example:
・When you deposit money in a bank, you earn interest on that amount.
・When you borrow money, you have to pay interest on the borrowed amount.
How Does This Relate to Forex?
In Forex, when you place a Buy order for EUR/USD, it means you are exchanging (selling) USD to buy EUR.
However, in Forex, you are not actually owning the currencies—you are simply trading the exchange rate of currency pairs.
So, your EUR/USD Buy order can be understood as borrowing USD to buy EUR.
Therefore, if you hold a EUR/USD Buy position overnight, you will:
・Pay interest on USD (since you are borrowing USD).
・Earn interest on EUR (since you are buying and holding EUR).
Swap = EUR Interest Rate – USD Interest Rate
Similarly, when you place a Sell order for EUR/USD, it means you are exchanging (selling) EUR to buy USD.
So, your EUR/USD Sell order can be understood as borrowing EUR to sell and buy USD.
Therefore, if you hold a EUR/USD Sell position overnight:
・You will incur interest on EUR (since you are borrowing EUR).
・You will earn interest on USD (since you are holding USD).
Swap = USD interest rate – EUR interest rate
After that, the swap fee will be either added to or deducted from your account balance.
When is the swap fee applied?
A swap fee will be charged if you place an order and do not close it before 22:00 GMT on the following day.
After that, the swap fee will be either credited to or deducted from your account balance accordingly.
Note:
Daylight Saving Time (Summer Time) Adjustment
From the 2nd Sunday of March to the 1st Sunday of November, the swap fee cutoff time changes:
Instead of 22:00 GMT, swap fees will be charged if you do not close your order before 21:00 GMT on the same day.
Example Cases
Case 1:
・You place a EUR/USD Buy order on Thursday.
・By 22:00 GMT on Thursday, you still haven’t closed the order.
Result: You will be charged a one-time swap fee.
Case 2:
・You place a EUR/USD Buy order before 22:00 GMT on Thursday.
・By 22:00 GMT on Monday (next week), you still haven’t closed the order.
Result: Following the calculation in Case 1, you will be charged the swap fee five times (once for each day from Thursday to Monday).
However, swap fees for Saturday and Sunday are charged together at 22:00 GMT on Monday.
So, in this case, instead of being charged five separate swap fees, you will be charged three swap fees:
・One for Thursday night
・One for Friday night
・Three combined swaps for Saturday, Sunday, and Monday (charged on Monday at 22:00 GMT)
Case 3:
・ You place a EUR/USD Buy order on Monday.
・ By 22:00 GMT on Wednesday, you still haven’t closed the order.
Result: Following the calculation in Case 1, you will be charged the swap fee three times (once for Monday night, Tuesday night, and Wednesday night).
However, Wednesday’s swap fee is charged three times to account for Saturday and Sunday (since no swaps are processed over the weekend).
So, in this case, instead of being charged three times, you will be charged five times the swap fee:
・ One for Monday night
・ One for Tuesday night
・ Three combined swaps for Wednesday night (covering Wednesday, Saturday, and Sunday)
If by 22:00 GMT on Wednesday, you have not closed the position, you will be charged a triple (×3) swap fee to account for the two weekend days (Saturday and Sunday).
For the remaining days of the week (Monday, Tuesday, Thursday, and Friday), if you have not closed the order by 22:00 GMT, you will be charged a single (×1) 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
To avoid swap fees, make sure to close your trades before 22:00 GMT on the same day!
(During Daylight Saving Time, close your trades before 21:00 GMT.)
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.
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