Swap cost is the hidden expense that steals a little bit of your trading profit.

Most traders when calculating trading costs usually think only of the spread or commission fees. But there’s another hidden expense, especially for beginners who don’t know it exists: swap fees, which can ruin your trading plan day by day.

How Much Does Swap Cost Impact Your Profit?

Imagine you make a profit of $30 on a trade, but you hold that position for 3 nights. Particularly on Wednesday night, known as the “3-Day Swap,” you might pay $25 in swap fees, leaving only $5 net profit. If your original profit wasn’t at least $30, it means you’re not trading “cost-effectively” or you have to close the trade because the potential profit isn’t worth the risk.

For traders using high leverage, the situation gets worse. If you open a 1 Lot EUR/USD position with only $1,090 margin (using 1:100 leverage) but are charged $8.72 swap per night, that’s a loss of 0.8% of your margin every day. When market movement isn’t favorable, swap fees gradually eat away at your profits until your account balance hits zero.

In reality, swap isn’t just a small fee; it’s a reflection of your true profit margin.

What Is Swap Fees, Really?

Source: Mitrade

Swap or “Overnight Interest” in finance refers to the fee for holding a position overnight. When you leave an order open past market close, you’re effectively borrowing money from your broker, and borrowed funds accrue interest.

In Forex trading, swap isn’t a random fee set by brokers. It’s based on the “interest rate differential” between the two currencies you’re trading.

Why Does Swap Exist?

When trading currency pairs like EUR/USD, you’re doing two things simultaneously: borrowing one currency and buying the other.

• Buy EUR/USD: Buy euros, but borrow dollars to pay for it.
• Sell EUR/USD: Sell euros, and receive dollars.

Each currency has its own interest rate set by its central bank. For example, EUR typically has about 4.0% annual interest (European Central Bank ECB), while USD has about 5.0% (Federal Reserve).

Example: If you Buy EUR/USD, you:

• Earn interest on EUR (~4.0% annually)
• Pay interest on USD (~5.0% annually)
• Net differential = 4.0% - 5.0% = -1.0% annually

This means you pay interest, not earn it.

If you Sell EUR/USD, you:

• Pay EUR interest (~4.0%)
• Earn USD interest (~5.0%)
• Net differential = 5.0% - 4.0% = +1.0% annually

You receive interest.

However, brokers act as intermediaries facilitating this borrowing, so they add a “management fee” on top. Therefore, even if theoretically you should earn +1.0%, your broker might give you only +0.2%, or sometimes charge you both long and short positions.

This is why swap rates for long and short positions are not exactly equal.

Types of Swap Fees You Need to Know

Positive Swap occurs when you receive money: the interest on what you buy exceeds the interest on what you borrow (after broker fees). For example, selling EUR/USD might give +0.8% annually.

Negative Swap is common: you pay money. For example, buying EUR/USD might cost -0.8% annually.

• Swap Long: swap fee when you open a Buy position
• Swap Short: swap fee when you open a Sell position

The Common Mistake: 3-Day Swap

Source: Mitrade

Most swap fees are calculated once daily, but there’s one day in the week when you’re charged 3 times the normal swap fee.

Why? Because the Forex market is closed on Saturday and Sunday, but interest continues to accrue in the financial world. Brokers must include the swap for Saturday and Sunday in one trading day’s fee.

Which day? Usually Wednesday night (from Wednesday to Thursday), due to technical reasons: Forex settlement (T+2) occurs 2 business days after the trade date.

• Trade on Wednesday → settle on Friday
• Holding over Friday, Saturday, Sunday → actual settlement on Monday

Brokers include the interest for all three days (Friday, Saturday, Sunday) in the Wednesday night fee.

Source: Mitrade

Note: Some brokers may use other days like Friday; always check with your broker.

How to Check Swap Fees Before Trading

Source: Mitrade

Before opening an order, you need to know the swap fee. The method to check it is very important.

On MT4 or MT5 platforms

1. Go to Market Watch (asset list)
2. Right-click on the asset (e.g., EUR/USD)
3. Select Specification
4. Find the lines “Swap Long” and “Swap Short”

The numbers are shown in Points, which require further calculation.

On Mitrade platform

1. Select the asset you want
2. On the right side of the trading screen, find the “Introduction” section
3. Scroll down to “Overnight Fees”
4. Mitrade displays it as a percentage (%) per night, which is much easier to understand and calculate.

How to Calculate Swap Fees Accurately

If swap is shown in “Points” (MT4/MT5)

Formula: Swap (money) = Swap Rate in Points × Value of 1 Point

Example: Buy 1 Lot EUR/USD

• Swap Long = -8.5 Points
• For EUR/USD, 1 Pip (10 Points) = $10 → 1 Point = $1
• Calculation: (-8.5) × ($1) = -8.5 USD per night
• For a 3-Day Swap (Wednesday night): (-8.5) × 3 = -25.5 USD

If swap is shown as a “percentage” (Mitrade)

Formula: Swap = (Position Value) × (Swap Rate %)

Example: Buy 1 Lot EUR/USD at 1.0900

• Step 1: Calculate position value = 1 Lot × 100,000 units × 1.0900 = 109,000 USD
• Step 2: Swap Rate (Buy) = -0.008% per night
• Calculation: 109,000 × (-0.008 ÷ 100) = -8.72 USD per night
• For Wednesday night (3-Day Swap): (-8.72) × 3 = -26.16 USD

Important: Swap is calculated based on the “full position value,” not just the margin. If your margin is $1,090 but your position size is $109,000, the swap fee of $8.72 represents about 0.8% of your margin per night, which is very high when using leverage.

Other Assets: Stocks, Commodities, Crypto

Swap fees are not limited to Forex.

CFD Stocks/Indices: Swap depends on the interest rates of the currency involved. For US stocks, it’s based on USD interest rates.

CFD Commodities (gold, oil): Swap often reflects storage costs or rollover of futures contracts.

CFD Cryptocurrencies: Based on the Funding Rate in exchange markets, which can be highly volatile.

Opportunities: Using Swap to Your Advantage

Carry Trade - Earning Interest Differentials

Carry Trade is a strategy that exploits positive swap rates directly.

Concept: Borrow a low-interest currency (like JPY or CHF) to buy a high-interest currency (like AUD or MXN during high-rate periods).

Example: Buy AUD/JPY

• AUD: high interest (~4.35%)
• JPY: low interest (~0.1%)
• If Swap Long is positive, you earn interest every night.

Risk: Exchange rate movements can wipe out gains. If AUD/JPY drops sharply, you could incur losses exceeding the accumulated swap profit.

Islamic Account - Swap-Free

Swap-Free or Islamic Accounts are options for traders who want to avoid swap fees due to religious reasons, as Islam prohibits paying or earning interest.

Brokers offer special accounts without swap charges, regardless of how long you hold positions.

Suitable for: Muslim traders and swing/position traders holding for weeks or months.

Trade-off: Spreads may be wider or there may be monthly management fees.

Why Swap Can Be Dangerous for Some Traders

Swap Eats Into Your Profits

You might make a $30 profit, but if swap fees over 3 nights total $25, your net profit drops to only $5.

Swap Forces You to Close Positions

In sideways markets, negative swap can cause small daily losses. Many traders can’t tolerate this and close their positions prematurely, even if their plan was to wait for a breakout.

Margin Call Risks Increase

High leverage combined with swap fees based on full position size can lead to margin calls if the market moves against you and swap fees deplete your margin.

Summary: Does Swap Really Affect Your Trading?

Swap is an often-overlooked hidden cost that significantly impacts your profitability.

The effect depends on your trading style:

• Scalpers/Day Traders: Minimal impact, as positions are closed quickly.
• Swing Traders: Moderate impact; include swap in your planning.
• Position Traders/Long-term Holders: Major impact; consider positive swap or Islamic accounts.

Ultimately, choosing a transparent broker like Mitrade, which clearly displays swap information, helps you plan better, avoid hidden costs, and increase your chances of making real profits.