A rollover fee, also known as “swap”, is charged when you keep a position open overnight.
A forex swap is the interest rate differential between the two currencies of the pair you are trading.
It is calculated according to whether your position is long or short.
The rollover fee is essentially the cost or gain associated with holding the position open for an extended period.
In forex trading, when a trader holds a currency pair position overnight, they are essentially borrowing one currency and lending another.
The rollover fee is the net interest earned or paid on the currencies, depending on the interest rate differential.
If the currency being bought has a higher interest rate than the one being sold, the trader will receive the rollover fee (positive swap), and vice versa.
In CFD and futures trading, rollover fees are related to the cost of financing the underlying asset’s leverage.
Traders may either receive or pay the fee, depending on the direction of their position and the interest rate differential.
How to Calculate Swap
For forex, here’s the formula to calculate swap:
Swap = (Pip Value * Swap Rate * Number of Nights) / 10
Trading 1 lot of EUR/USD (short) with an account denominated in EUR
Pip value: $10
Swap rate: 0.54
Swap fee: (10 * 0.54 * 1) / 10 = $0.54
Rollover fees are typically calculated and applied daily, at a specific time (known as the rollover or swap time), and can either be debited from or credited to the trader’s account.
It’s important for traders to be aware of the rollover fees associated with their positions, as they can have an impact on their overall trading profitability, especially if they hold positions open for an extended period.
Some brokers may offer “swap-free” or “Islamic” accounts, which do not charge rollover fees, to accommodate traders who are restricted by religious beliefs from engaging in transactions that involve interest.