FX · What trading FX costs · lesson 6 of 9 · 8 min read · David Alexander
Swap and rollover, properly
swap and rollover
Holding an FX position through 5pm New York rolls it to the next settlement date, and the interest rate difference between the pair's two currencies is charged or credited to your account per lot per night. The direction and size of that number come from the two currencies' rates and your broker's mark-up, it runs both ways, and on most retail positions most of the time it is a cost.
Module 1 promised that what happens to a position held overnight belonged in this module. Here it is. At 5pm New York, every open FX position rolls: yesterday's settlement date becomes tomorrow's, and money moves in or out of your account for the privilege.
Why does holding a currency pair involve interest at all?
A spot FX position is two loans wearing one price. Long EUR/USD, you hold euros and owe dollars, so you earn something like the euro interest rate and pay something like the dollar one. The gap between the two rates, scaled to your position and marked up by your broker, is the swap. When the currency you hold yields less than the one you owe, the number is against you.
The rates involved are overnight interbank rates, and the mechanism that applies them is called tom-next - tomorrow-next - because your position's settlement rolls from tomorrow to the day after. You never see the machinery. You see one signed number per lot per night on your broker's specification page.
Why does Wednesday charge three nights?
Spot FX settles two business days ahead. Roll a position on Wednesday evening and the new settlement date lands on Monday, carrying the weekend with it - three days of financing applied in one go. Brokers vary in which evening carries the triple charge, and the specification page states it. A position held Wednesday to Thursday costs three nights of swap while feeling like one.
Does the number ever run in your favour?
Yes, and treat that fact carefully. Reverse a position and the interest gap reverses with it, minus the broker's mark-up on both sides, so one direction of most pairs carries a credit. A credit is a reduction in your holding cost. It is not a reason to hold a position, and a strategy built on collecting it is a bet that the exchange rate will sit still while you collect pennies in front of it - the rate moving one bad day can take back months of credits. This module prices costs; whether to hold a position is a decision your analysis makes, never your financing line.
The practical fact is simpler and less exciting: on most pairs, at most times, in the direction most retail positions point, the swap is a charge. Budget it like one.
Worked example
figures in USDYour broker publishes -$8.20 per lot per night on the pair, you hold 1 lot for a full trading week - five nights including the triple-charged one.
- Read the published rate: -$8.20 per lot per night, sign included - the rate carries its own direction.
- Count the nights the position is actually charged: 5 calendar nights of holding with 1 triple-charged evening makes 7 charged nights.
- At 1 lot, each charged night moves your account by -$8.20, and the week's financing comes to -$57.40 - applied whether the position is winning or losing.
What this means for you
Before holding anything past 5pm New York, read the swap line on your broker's specification page for your pair and your direction, and multiply it out for your intended holding period, triple night included. A week's financing on a standard lot is a real number in every currency, and it accrues silently on a position you are not looking at. If the number surprises you, the time to be surprised is before entry.
Try it yourself
Swap cost calculator
What overnight financing adds up to across a holding period, triple-swap nights included.
Check your understanding
Question 1 of 4
Where does the overnight swap number come from?