What is forex swap? How to take advantage of swaps in Forex?

EducationNovember 16, 2021

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When trading forex on exchanges, you must have heard of swaps. What are Swaps? How to calculate the swap fee in forex? And how to take advantage of swaps during forex trading? This article will help you answer these questions.

What is Forex Swap?

Swap, also known as the overnight fee, is part of the cost investors have to pay to the forex broker if they want to hold a position overnight. Or swap is the interest that you earn or pay when making overnight trades.

When trading forex, we will buy and sell currency pairs, and each currency will have a different interest rate. When holding a currency pair overnight, there will be an interest rate differential. If the buy rate is higher than the sell rate, investors will receive a rollover fee. Conversely, if the buy currency pair is lower than the sell currency pair, you must pay an overnight fee. This fee varies between brokers.

* See more: The complete guide XM from a to z

How to calculate overnight forex swap?

Brokers will calculate the swap when the US session is closed. Depending on each broker and depending on the leverage, there will be different swap levels. You can check this overnight rate on the broker’s website.

In addition, you can also test right away on MT4. Then you will apply the swap rate to calculate the swap fee for each order as follows:

Swap = (Exchange rate/one point) x Volume (lot) x swap value in points

If the swap result is positive, you will benefit from this swap. If the impact is negative, the broker will deduct money from your account.

E.g.:

When trading the EUR/USD currency pair, the swap for short positions is 0.01, and long positions are -0.45. If a trader makes a sale of a standard lot of the pair on Thursday and keeps the position open overnight, on Friday, the swap will be calculated as follows:

Swap = 100,000 x (0.01 x 0.0001 pips) = 0.10 USD.

That is, with this short position, we will receive a profit of 0.1 USD.

In case an investor buys one standard lot of EUR/USD on Thursday and closes his position on Tuesday, the swap cost is calculated as follows:

Swap = 100,000 x (-0.45 x 0.0001 pip) = – 4.5 USD per night.

According to the above data, we will lose 4.5 USD per night, and currently, the position is held for three nights, so we have to pay a total profit of -4.5 x 3 = – 13.5 USD.

Assuming the same position is closed next Thursday, one week will have seven days, five weekdays, and two weekends. The interest to be paid is 7 x -4.5= – 31.5 USD.

As a general rule of Weekend Swap, fees will always be charged for any position opened on Wednesday. Therefore. No weekend fee will be charged for buy orders from Thursday to Tuesday next week, so only three nights will be charged. But when you keep overnight on Wednesday, you will be charged the weekend fee. Therefore the swap will be charged for seven days.

Broker’s swap fee calculation time.

The standard swap fee calculation time will fall between 22:00 and 24:00. In addition, depending on each broker, there will be separate time frames. Investors can find out this information by reading the broker’s regulations or asking the support staff.

For example, Broker A’s swap time is 22 hours. If you open a position at 21:59, the broker will charge overnight. But opening at 22:01, the broker will not charge overnight.

How to check swaps on MT4?

To check the swap on MT4, follow the instructions below.

Step 1: Go to the MT4 forex trading platform, right-click on the Market Watch section in the left corner of the screen, select the currency pair, select Specification.

How to check swaps on MT4?

Step 2: The system will display a table including the parameters buying fee and selling fee.

What is Forex Swap? How to calculate overnight forex swap? How to check swaps on MT4? Broker's swap fee calculation time.

How to take advantage of swaps in Forex trading?

If you are a trader who loves scalping, you may not need to care about swap fees. However, if you are looking for a long-term investment, you should learn about this fee. To be able to take advantage of this fee in investment transactions, you need to pay attention to the following points:

  • Should choose to trade currency pairs with a positive swap

Investors should check the swap rates of currency pairs before making trades. Priority should be given to choosing teams with swap fees to benefit from overnight trading.

  • Take advantage of the x3 swap on Wednesdays.

On the fourth day, the swap will multiply by 3, so earning a decent amount would help if you took advantage of this factor to conduct trades. In addition, you also need to pay attention to letting the stop loss stretch a bit to avoid being scanned because this is just the time to open so that the spread will widen.

Conclusion

Above is detailed information about what swap fees are, how swaps are charged at exchanges, and some tips for traders to take advantage of swap fees during trading.

In general, investors can earn a decent profit if they know how to calculate and see the information about the overnight charge time. We hope this article will help traders in the trading process.

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