Swap
Trading MechanicsThe overnight interest charge or credit applied when holding a forex position past the daily cut-off time. Swap rates reflect the interest rate difference between the two currencies.
What Is a Swap in Forex?
A swap (also called overnight financing or Rollover interest) is the interest differential between the two currencies in a Currency Pair, applied daily to open positions held past the Daily Cut-Off. If you buy a currency with a higher interest rate than the one you sell, you may receive a swap credit. If you buy the lower-yielding currency, you pay a swap charge.
Swap Rate Example
Suppose the Australian central bank rate is 4.35% and the Japanese rate is 0.10%. If you buy AUD/JPY (long the higher-yielding currency), you may earn a positive swap of a few dollars per standard Lot per night. If you sell AUD/JPY (long the lower-yielding yen), you pay a negative swap. Actual swap rates vary by broker and do not exactly match the interest rate differential because brokers add their own markup.
Checking Swap Rates
Your broker publishes swap rates (long and short) for every pair, usually in your trading platform under "Contract Specifications" or "Instrument Details." Swap rates change periodically as central banks adjust interest rates. Carry traders specifically seek pairs with large positive swaps, while short-term traders often ignore swaps since the daily cost is small relative to pip movements.
Related Terms
Rollover
The process of extending the settlement date of an open forex position to the next trading day. Rollover results in a swap charge or credit based on interest rate differentials.
Cost of Carry
The total cost of holding a forex position over time, including swap charges, financing fees, and the opportunity cost of margin used.