What are Swaps?
Forex market is divided into 4 sessions: Sydney, Tokyo, London and New York. Each of these sessions open and close at different times, like Sydney (10 PM – 7 AM GMT), Tokyo (12 midnight – 9 AM GMT), London (8 AM – 4 PM GMT) and New York (1 PM – 10 PM GMT). Intraday traders open and close positions within the trading hours of their trading session. If they don’t close the position at the end of the trading session, then a swap fee is applied, which is a type of a trading fee charged by the broker for keeping the position open overnight.
A swap is an interest on a deal you hold overnight in the forex market that you either pay for or earn. Your open deals’ length and duration are used to determine the swap charges. Swaps are also known as “rollover costs” and can be used to protect against a variety of risks, such as interest rate and currency risk. In simple words, swaps are trading fees a broker charges its clients for opening a trade overnight. Read in article more about pip value calculator.
The swap rate is determined by the market and the next instrument you exchange. Take EUR/USD and USD/CAD for example, the swap value of these pairs would be totally different. Your broker will determine the precise time the swap is applied to your trading account.
The weekend swap is charged on either Fridays or Wednesdays, depending on the day of the week, to make up for the fact that the markets are closed on the weekend. Also, keep in mind that occasionally, even when a position is not held over the weekend, the swap will charge for keeping it open. This is something that is not always known. Also, due to the market’s weekend closure, if you start a position on Friday and do not close it by Sunday, a three-day swap fee will be assessed.
Formula to Calculate Swaps
For Forex Trading – Lot x Contract Size x Long/ Short Points x Point Size
The value of the swap can be positive or negative because it depends upon the swap rate and the type of position taken. To put it another way, you will have to pay a price or be compensated for keeping your position open for the night. While trading with leverage, swap values are assessed.
When you trade using a certain amount of leverage, money is essentially borrowed to make a trade. When you enter a trade on the fx market, you place two trades simultaneously: you are selling a currency and buying another. You must pay interest because, if you wish to sell a currency in the currency pair, you will have to borrow the amount you need to sell it at.
You might make money by keeping the position overnight especially when the underlying rate of interest for bought currency is higher compared to the sold currency. But, irrespective of the position established, you might still be levied a certain amount of interest because of certain factors, one being the markup fee levied by the broker.
Conclusion
To trade forex successfully, it is crucial to be knowledgeable about various terms including fx swap calculator. As already discussed in the article, swaps are overnight position fees/interest a broker charges you for a trade, you can skip swaps if you trade with the scalping strategy. Furthermore, keep in mind that there are no shortcuts to success in forex trading; it is a challenging path. By combining your abilities with a sound market knowledge, you can make a lucrative forex career.