What Is a Swap in Forex?

In forex trading, a swap (also called rollover interest, overnight interest, or swap rate) is the interest charge or credit applied to a trader’s account when a position is held open past the daily rollover time—typically 5:00 p.m. New York time (00:00 server time on most brokers).

Swaps exist because forex trades involve borrowing one currency to buy another. Every currency has an associated interest rate set by its central bank. When you hold a position overnight, you are effectively paying interest on the borrowed currency and earning interest on the currency you bought. This article is not for financial advice but for informative purpose only.

How Swaps Work

Forex is traded in pairs (e.g., EUR/USD). When you go long EUR/USD:

• You buy euros (paying the euro interest rate).
• You sell USD (earning the U.S. dollar interest rate).

The swap is the net difference between these two interest rates, adjusted for the position size and direction.

Basic Formula

Swap = (Position size in lots) × (Interest rate differential) × (Adjustment for days)

• Positive swap: You earn interest (common when buying a higher-yielding currency against a lower-yielding one).
• Negative swap: You pay interest (common when buying a lower-yielding currency against a higher-yielding one).

Triple Swap on Wednesdays

Most brokers apply a triple swap on Wednesday (or sometimes Thursday for certain pairs) to account for the weekend. Positions held over the weekend incur three days’ interest in one charge because markets are closed Saturday and Sunday.

Types of Swaps

1. Long Swap
   Interest when holding a buy position overnight.
2. Short Swap
   Interest when holding a sell position overnight.
3. Swap-Free (Islamic) Accounts
   Offered by many brokers for religious reasons; no interest charges, but often wider spreads or admin fees instead.

Examples of Swap Rates (Illustrative, as of late 2025)

Typical approximate daily swaps for 1 standard lot (100,000 units):

*** This is not the current rate ***

Rates vary by broker, liquidity provider, and current central bank policies. They are quoted in the trading platform (e.g., MetaTrader “Specification” window).

Why Swaps Exist

Forex positions are leveraged trades settled in two days (T+2). Holding overnight means rolling the position forward, incurring the cost/credit of borrowing one currency to hold another. This reflects real interbank lending rates.

Role and Importance of Swaps

1. Cost of Holding Positions
   For swing or position traders, accumulated swaps can significantly affect profitability, especially on low-volatility pairs.
2. Carry Trade Foundation
   Traders historically profited from positive swaps by buying high-interest currencies against low-interest ones (e.g., AUD/JPY in the 2000s).
3. Broker Revenue
   Negative swaps are a key income source for retail brokers.
4. Impact on Strategy
   Day traders avoid swaps by closing before rollover. Long-term holders factor them into total return.
5. Reflection of Monetary Policy
   Swap rates mirror interest rate differentials, signaling central bank stances (e.g., negative JPY swaps reflect ultra-low rates).

Swaps are an unavoidable feature of forex due to its interest-rate-based nature. They represent the real cost or benefit of borrowing one currency to hold another overnight, directly tying trading to global monetary policy differences. While often small daily, they accumulate and influence holding periods and pair selection across the market.