Trading knowledge libraryWhat Is a Swap or Overnight FeeMarket Basics
Market Basics
What Is a Swap or Overnight Fee
A swap is the small amount your broker charges or pays you for every night a trade stays open. This paper shows you when it is charged and why Wednesday counts three times, where the money comes from, what one real trade held for a week paid in swap at one lot and at a tenth of a lot, and where the number sits on your own platform.
Once a day, usually at midnight on its own clock, your broker closes its books for the day and opens them for the next. That moment is called the rollover. Any trade still open when it happens is charged or paid a small amount for staying open overnight, and that amount is the swap — also called the overnight fee. It is not on the chart, it is not in the spread, and most beginners meet it for the first time as a line on their statement. Two things about it are odd until they are explained. It can be positive: on some trades the broker pays you each night rather than charging you. And it is charged three times on a Wednesday, so a trade held from Monday to Friday crosses four midnights but pays for six nights.
Where the money comes from
Every currency has an interest rate, set by its central bank. When you buy the euro against the dollar you are holding euros and owing dollars, and each side has a rate attached. The euros you hold earn the euro's rate; the dollars you owe cost the dollar's rate. If the dollar's rate is the higher one, holding that trade costs you the difference every night. Selling the pair turns it round: you hold dollars and owe euros, and the difference is paid to you. The broker adds its own cut to both sides, which is why the number you are paid in one direction is always smaller than the number you are charged in the other.
The Wednesday triple is a settlement rule. Currency deals settle two working days later, so a trade held over Wednesday night is settling on the weekend, and the weekend's two nights of interest are charged then. Nothing sinister, but worth knowing the night before.
