When trading forex on exchanges, you must have heard of swaps. What are Swaps? How to calculate the swap fee in forex? And how to take advantage of swaps during forex trading? This article will help you answer these questions.
What is Forex Swap?
The swap, also known as overnight commission, is part of the cost that investors have to pay to the forex broker if they want to hold a position overnight.
Either swap is the interest you earn or pay when you make nightly trades.
When we trade forex, we will buy and sell currency pairs, and each currency will have a different interest rate. When holding a currency pair overnight, there will be an interest rate differential. If the buy rate is higher than the sell rate, investors will receive a rollover fee. Conversely, if the buying currency pair is lower than the selling currency pair, you need to pay an overnight fee. This fee varies between brokers.
How to calculate overnight forex swap?
Brokers will calculate the swap at the close of the US session. Depending on each broker and depending on the leverage, there will be different levels of swaps. You can check this overnight rate on the broker’s website.
In addition, you can also test on MT4 right away. Then you will apply the swap rate to calculate the swap fee for each order as follows:
Swap = (Exchange rate/one point) x Volume (lot) x swap value in points
If the result of the swap is positive, you will benefit from this swap. If the impact is negative, the broker will deduct money from your account.
When trading the EUR/USD currency pair, the swap for short positions is 0.01 and long positions are -0.45. If a trader makes a sale of a standard lot of the pair on Thursday and keeps the position open overnight, on Friday, the swap will be calculated as follows:
Swap = 100,000 x (0.01 x 0.0001 pips) = 0.10 USD.
That is, with this short position, we will receive a profit of 0.1 USD.
In the event that an investor buys a standard lot of EUR/USD on Thursday and closes his position on Tuesday, the cost of the swap is calculated as follows:
Swap = 100,000 x (-0.45 x 0.0001 pips) = – 4.5 USD per night.
According to the above data, we will lose 4.5 USD per night and currently the position is held for three nights, so we have to pay a total profit of -4.5 x 3 = – 13.5 USD.
Assuming the same position is closed next Thursday, a week will have seven days, five weekdays and two weekends. The interest to be paid is 7 x -4.5= – 31.5 USD.
As a general rule of the Weekend Swap, fees will always be charged for any position opened on Wednesdays. Therefore. No weekend fees will be charged for purchase orders from Thursday to Tuesday of next week, so only three nights will be charged. But when you keep the night on Wednesdays, you will be charged the weekend tax. Therefore the swap will be charged for seven days.
Time of calculation of the broker’s swap fee.
The calculation time of the standard swap fee will fall between 22:00 and 24:00. In addition, depending on each broker, there will be separate time frames. Investors can find out this information by reading the broker’s regulations or asking the support staff.
For example, the swap time of Broker A is 22 hours. If you open a position at 21:59, the broker will charge overnight. But opening at 22:01, the broker will not charge overnight.
How to check swaps on MT4?
To check swapping on MT4, follow the instructions below.
Step 1: Go to the MT4 forex trading platform, right-click on the Market Watch section in the left corner of the screen, select the currency pair, select Specify.
Step 2: The system will display a table that includes the purchase commission and sales commission parameters.
How to take advantage of swaps in Forex trading?
If you are a trader who loves scalping, you may not have to worry about swap fees. However, if you are looking for a long-term investment, you should know this fee. In order to take advantage of this fee in investment transactions, you should pay attention to the following points:
- You should choose to trade currency pairs with a positive swap
Investors should check the swap rates of currency pairs before making trades. Priority should be given to choosing teams with swap fees to benefit from overnight trading.
- Take advantage of the x3 swap on Wednesdays.
On the fourth day, the swap will multiply by 3, so earning a decent amount would help if you took advantage of this factor to conduct trades. In addition, you also need to pay attention to letting the stop loss stretch a bit to avoid being scanned because this is just the time to open so that the spread widens.
Above is detailed information on what swap fees are, how swaps are charged on exchanges, and some tips for traders to take advantage of swap fees when trading.
In general, investors can earn a decent profit if they know how to calculate and see information about the nighttime charging time. We hope this article will help traders in the trading process.