Swapping in trading: The hidden cost that erodes your daily profits

Many traders tend to focus only on Spread and Commission, forgetting something equally important: the overnight holding fee, known as Swap. This hidden cost significantly impacts your profitability, especially if you tend to hold orders for days, weeks, or months.

What is Swap? Why do brokers charge it?

In financial terms, Swap refers to the fee for holding a position overnight. It is a type of interest that arises from holding a trade position beyond market hours. Other terms for it include “Overnight Interest” or “Rollover Fee.”

Brokers charge this not just for profit; there are deeper financial reasons. When you trade in markets like Forex but do not close your order within the day, the broker must “lend” you money to maintain that position. Lending money incurs costs, which is what Swap reflects.

How Swap Works: The difference in interest rates between currencies

To truly understand Swap, we need to start with the “Interest Rate Differential.”

When you open a Forex trade, such as EUR/USD, you are “borrowing” one currency to “buy” another.

• If you go Long (Buy) EUR/USD: You “buy” EUR and “borrow” USD to pay for the purchase.
• If you go Short (Sell) EUR/USD: You “borrow” EUR to sell and receive USD.

All currencies have their own interest rates set by their central banks, for example:

• US Dollar (USD) controlled by the FED at 4.5% per year (example)
• Euro (EUR) controlled by ECB at 3.5% per year (example)
• Japanese Yen (JPY) at 0.25% per year (very low)

Thus, when you “borrow” a currency, you pay interest; when you “hold” a currency, you receive interest. Swap is the difference between these two.

Simple example of Swap calculation

Suppose you trade Buy EUR/USD:

• EUR has an interest rate of 3.5% per year (you “hold” EUR, so you “receive” interest)
• USD has an interest rate of 4.5% per year (you “borrow” USD, so you “pay” interest)
• Difference = 3.5% - 4.5% = -1.0% per year

Result: You will pay Swap (negative) every night you hold this position.

If you trade Sell EUR/USD:

• EUR interest rate: 3.5% (you “borrow” EUR, so you “pay”)
• USD interest rate: 4.5% (you “hold” USD, so you “receive”)
• Difference = 4.5% - 3.5% = +1.0% per year

Result: You will receive Swap (positive) every night you hold this position.

Positive and Negative Swap: Why do most traders lose?

This is where beginner traders often get surprised. Although theoretically, Swap should reflect the actual interest rate differential, in reality…

Brokers add their own fees. They act as intermediaries facilitating the lending process and managing the positions. Therefore, they add a “markup” or “management fee” into the actual Swap rate.

For example:

• Actual interest rate differential = +1.0% (positive)
• Broker’s markup/fee = -0.8%
• Actual Swap you receive = +0.2%

In another case, if the broker charges high fees, Swap both long and short might be negative, meaning you pay every night regardless of buy or sell. This explains why Swap Long (for buy orders) and Swap Short (for sell orders) are usually not exactly the same.

The 3-Day Swap phenomenon: Why is Wednesday night so tricky?

This is a common mistake among new traders. Normally, Swap is calculated daily, but there is one day in the week when Swap is tripled (3x Swap).

Why?

Forex and CFD markets are closed on Saturday and Sunday, but the global financial system continues to accrue interest. Even on holidays, interest payments are ongoing. Therefore, brokers consolidate the Swap charges for Saturday and Sunday into the trading day.

When does this happen? Mostly on Wednesday night (holding from Wednesday to Thursday), because:

Forex settlement cycles are T+2 (two business days after the trade):

• Trade on Monday → settle on Wednesday
• Trade on Wednesday → settle on Friday
• When you hold from Wednesday to Thursday, the T+2 cycle falls on Monday (skipping Saturday and Sunday, which are non-trading days)

As a result, you are “borrowing” money over the weekend (Friday, Saturday, Sunday). The broker combines the interest for these 3 days into the Wednesday night swap.

Hence, if you hold a Buy order of 1 Lot EUR/USD with a Swap Long = -8.5 USD/night:

• Normal night: lose 8.5 USD
• Wednesday night (3-day swap): lose 8.5 × 3 = 25.5 USD

This is why some traders try to avoid holding positions overnight on Wednesday.

How to check Swap rates before opening an order

To know how much Swap costs and how it affects your profit, always check this before opening. The method varies depending on your platform.

In MT4/MT5 (MetaTrader)

1. Go to the Market Watch window (asset list)
2. Right-click on the asset (e.g., EUR/USD)
3. Select “Specification”
4. A window opens showing:
   • Swap Long: Swap rate for Buy orders
   • Swap Short: Swap rate for Sell orders
5. The numbers are usually in Points, which you need to convert for calculation.

On Mitrade and modern platforms

Modern platforms are designed to be more user-friendly:

1. Select the asset you want to trade
2. Find the “Overnight Fee” or “Overnight Rate” tab
3. Mitrade displays Swap as a percentage (%) per night, e.g., -0.015% per night, making it easy to calculate.

Transparent display helps you accurately estimate costs before deciding to trade.

How to calculate Swap: formulas traders need to know

Once you know the Swap rate, you can calculate the actual cost in money.

Method 1: Using Points (MT4/MT5)

Formula: