## What is a Swap Rate when it comes to Forex?

Swap is an interest rate that is paid or calculated at the end of each trading day. When you trade on margins, you might earn or pay interest on your long and short positions. The net interest differential is referred to as carry and traders looking to profit from it are referred to as carry traders.

## Forex Swaps FAQ

Here are the most frequently asked questions when it comes to Forex Swaps.

A swap in forex refers to the interest that you either earn or pay for a trade that you keep open overnight. There are two types of swaps: Swap long (used for keeping long positions open overnight) and Swap short (used for keeping short positions open overnight)

Swaps are expressed in points, and vary depending on the financial instrument you’re trading. Check the table above to see what swaps are being charged on each instrument. In the case of EURUSD, for instance, Swap short is -0.18 and Swap long is -5.12.

Let’s use the EURUSD as an example to show how swaps work. If a trader shorts EURUSD by 1 standard lot on a Thursday, and keeps the position open overnight, closing it on Friday. To calculate a SWAP we use the following formula: (Pip Value * Swap Rate * Number of Nights) / 10. So sticking with the previous example, the SWAP charged on 1 night for a EURUSD lot is: (10 * -0.18 * 1) / 10 = -\$0.18

If a trader goes long on EURUSD, for example, and they go long by 1 standard lot on Thursday, and then close their position on the following Tuesday, the swap long formula would be: (10 * -5.12) / 10 = -\$5.12. Since the trader is keeping his/ her position open for three nights, that would be a total interest of -\$15.36 (-\$5.12 X 3) that he or she would need to pay.

It really depends on the instrument you’re trading. If we are to go with the same example we’ve shown in the above FAQ, and you opened a long EURUSD position on Thursday and closed it on the following Thursday, this would mean you had your position open for 5 nights (Wednesday is considered a 3 day SWAP). This would mean you’d pay \$35.84 (-\$5.12 * 7) of interest.

It’s important to remember that on Wednesday, a 3 day Swap would be applied. If a trader were to short EURUSD on a Monday with 1 Standard lot, and close his position on Thursday, the position would theoretically be open for only 2 nights, but since Wednesday has 3 days, the total would be 5 days. This would raise the total number of nights to 5.

In this case, the trader pays -\$0.18 a night ([10 * 0.18] / 10) so he would pay a total of -\$0.9 (-\$0.18 * 5) for the total duration of his open position. When it comes to Indices and Oil contracts, 3 day Swaps are applied on a Friday rather than on a Wednesday.

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