What Is Swap?

Swap, also called rollover or overnight financing, is the interest adjustment applied to a forex position that remains open past the end of the trading day. It reflects the difference between the interest rates of the two currencies in the pair, plus the broker's own adjustment. Depending on the direction of your trade and the rates involved, swap may be a small credit or a small charge each night, and over a long holding period it can materially affect the result of a trade.

Where swap comes from

When you buy a currency pair you are, in economic terms, borrowing the quote currency and lending the base currency. Each currency has an interest rate set by its central bank and the money markets that follow it. If the currency you hold long earns more interest than the currency you are effectively short, the net interest is in your favour. If it earns less, the net interest is against you.

Spot forex transactions settle two business days after the trade date. A retail broker does not want to deliver currency, so at the end of each day it rolls every open position forward by one day, closing the old value date and opening a new one. The cost or gain of that roll, derived from the interest differential and the broker's mark-up, is the swap.

Long swap and short swap

Every pair has two swap rates: one for long positions and one for short positions. They are not simply mirror images, because the broker's adjustment is applied to both.

Consider a pair where the base currency's interest rate is higher than the quote currency's rate.

Because of the broker's adjustment, it is common for both long and short swap on a pair to be negative when the rate differential is small. When the differential is large, the favourable side is more likely to show a genuine credit. Exact swap rates vary by broker and account type and are published in the contract specifications; they also change as central banks move interest rates.

How swap is displayed

Platforms show swap in one of several formats, and the format determines how you convert it to money.

Swap in points

Many platforms express swap in points, where one point is the smallest price increment (a pipette on five-digit quotes). A long swap of −6.5 points on EUR/USD means −0.65 pips per standard lot per night.

• Pip value for one standard lot of EUR/USD: $10
• Nightly swap: −0.65 × $10 = −$6.50
• Weekly cost (with Wednesday tripled, five business days): −$6.50 × 7 nights = −$45.50

Swap in money

Some platforms show the nightly amount per lot in the account or base currency directly, which requires no conversion.

Swap as an annual percentage

Occasionally swap is quoted as an annual interest rate applied to the notional value. A −2.5% annual rate on a $108,500 position is −2,712.50 per year, or about −$7.43 per night (dividing by 365).

Check which format your platform uses before comparing swap rates between brokers or estimating the cost of a long-term trade.

Estimating swap from interest rates

The underlying differential can be approximated as follows:

Nightly interest ≈ notional value × (base rate − quote rate) ÷ 365

Worked example: long 1 standard lot of AUD/USD at 0.6500 with an Australian policy rate of 4.0% and a US policy rate of 5.0% (illustrative figures).

• Notional value in dollars: 100,000 × 0.6500 = $65,000
• Differential: 4.0% − 5.0% = −1.0%
• Nightly interest: 65,000 × (−0.01) ÷ 365 ≈ −$1.78

The broker's actual swap will differ from this figure because it uses market rates rather than policy rates and adds its own adjustment. The calculation is useful for understanding the direction and rough magnitude, not for predicting the exact charge.

The Wednesday triple swap

Because spot trades settle on a T+2 basis, the value date advances by one business day at each rollover. A position rolled on Wednesday moves from a Friday value date to a Monday value date, a span of three calendar days. To account for the weekend, brokers charge or credit three nights of swap at Wednesday's rollover.

Some brokers apply the triple swap on a different day for certain instruments, particularly non-forex CFDs. The contract specification will state which day applies.

When swap is applied

Rollover usually happens at 5 p.m. New York time, which corresponds to the end of the trading day in the forex market. Any position open at that moment incurs swap for the night, even if it was opened seconds before. Liquidity is also briefly thin at this time, and spreads often widen for a few minutes; see What Is Forex Liquidity?.

The trading hours tool shows the rollover time in your local time zone, which is useful if you want to close short-term trades before it.

Swap and trading style

A swing trader holding 1 lot of a pair with −$6.50 nightly swap for 20 business days pays around −$182 (including four triple-swap Wednesdays), the equivalent of 18 pips. That is comparable to a modest stop-loss and should be built into the trade's expected value.

The carry trade

Traders sometimes hold a position specifically to collect positive swap, buying a high-interest-rate currency against a low-interest-rate one. This is the carry trade. Its appeal is a steady credit; its danger is that high-yielding currencies often fall sharply when risk appetite deteriorates, wiping out months of accumulated swap in days. Carry is a strategy in its own right, not a free addition to a trade, and it is discussed further in Interest Rates and Forex.

Swap-free accounts

Some brokers offer swap-free or Islamic accounts that replace overnight interest with an alternative arrangement, such as an administration fee after a set number of days. Eligibility, terms and instrument coverage vary by broker; if you require this type of account, check the specific conditions on the trading accounts page or with the broker directly.

Key takeaways

• Swap is the overnight financing adjustment on positions held past the daily rollover, derived from the interest rate difference between the two currencies plus the broker's adjustment.
• Each pair has separate long and short swap rates; both can be negative when the rate differential is small.
• Platforms display swap in points, money or annual percentage; convert it to money using pip value or notional value.
• Wednesday rollover applies three nights of swap to cover weekend settlement.
• Swap matters little for intraday trading but can be a significant cost or credit for trades held for weeks.
• Swap rates vary by broker and account type and change with central bank policy; check the contract specifications.