What is Swap Forex? Actually, how much profit do you really earn?

Most Forex traders still do not pay much attention to the “hidden cost” called Swap. Usually, we see the Spread and Commission, but what about Swap? It quietly eats away at your funds every night you hold an order. Many beginner traders do not know where their profits have gone.

What is Swap? The hidden cost you “cannot see”

Swap simply put, is the interest that accrues from holding a trading position (Position) overnight. It is the difference in interest rates between the two currencies you are trading.

When you trade a Forex pair, such as EUR/USD, you are actually:

• If Buy (Long): Buying EUR and borrowing USD
• If Sell (Short): Borrowing EUR and holding USD

Each currency has its own policy interest rate set by its central bank. The Swap is the difference between the interest you pay and the interest you receive.

Why do you pay Swap? The story behind it

Let’s look clearly: if EUR interest rate is 4.0% per year and USD is 5.0% per year:

• Buy EUR/USD: You earn EUR interest (4.0%) but pay USD interest (5.0%) → the difference is negative -1.0% per year
• Sell EUR/USD: You pay EUR interest (4.0%) but receive USD interest (5.0%) → the difference is positive +1.0% per year

However, in reality, you do not receive/pay the full amount because the trading platform (Broker) adds its own “handling fee.” Therefore, even if theoretically you should get a positive Swap, the platform might deduct a fee, leaving you with only a part or turning it into a negative.

Swap Long vs Swap Short: Why are they not equal?

This is why Swap Long (for Buy orders) and Swap Short (for Sell orders) are never the same.

These two figures differ because trading platforms charge fees on both sides. The difference between Swap Long and Swap Short can sometimes be 2-3 times, depending on the broker.

3-Day Swap: The “meltdown” day for traders

This is the part most beginner traders do not know:

Why is there a 3-Day Swap?

The Forex market is closed on Saturday and Sunday, but financial interest continues every day, including holidays. Therefore, trading platforms must accumulate and include the Swap for Saturday-Sunday into the trading day.

Typically, Wednesday night is when you are charged a 3x Swap (some platforms may use Friday). The technical reason is that the Forex market’s settlement cycle (Settlement) is T+2 (2 business days after trading).

Example: If you buy 1 Lot EUR/USD with Swap Long = -8.5 Points

• 1 Pip value (10 Points) = $10 USD
• So, 1 Point = $1 USD
• Normal Swap per night = -8.5 USD
• Swap on Wednesday night = -8.5 × 3 = -25.5 USD

Quite a significant amount, isn’t it?

How to accurately calculate Swap costs

Method 1: Calculate based on percentage (%) per night

Formula: Swap (in money) = Position value × Swap rate % ÷ 100

Real example:

• You buy 1 Lot EUR/USD (100,000 units)
• EUR/USD price = 1.0900
• Swap rate for Buy = -0.008% per night

Step 1: Find position value = 1 × 100,000 × 1.0900 = 109,000 USD

Step 2: Calculate Swap = 109,000 × (-0.008 ÷ 100) = -8.72 USD per night

Step 3: For 3-Day Swap = -8.72 × 3 = -26.16 USD

Method 2: Check from the trading platform

Most platforms display Swap directly:

1. Select the asset
2. Find details of Swap Long / Swap Short
3. Record the figures and calculate using the above formula

The risk of Swap: How much does it really eat?

Risk 1: Profit loss

You might make a profit of 50 USD from price movement, but if you hold an order for 5 nights (including one 3-Day Swap):

• Normal Swap: -8.72 USD × 4 nights = -34.88 USD
• 3-Day Swap: -26.16 USD
• Total Swap = -60.88 USD

Your $50 profit disappears, turning into a $10.88 loss.

Risk 2: Forced position closure

In a sideways market (Sideways), holding an order with negative Swap means losing money every day. Many traders cannot tolerate this and close their positions even if their original plan was to wait for better prices.

Risk 3: Margin drain

Remember, Swap is calculated on the “full” value of the position, not on the Margin you put up.

If you leverage 1:100 to open 1 Lot:

• Margin required: ≈1,090 USD
• Swap per night: 8.72 USD
• Compared to Margin: 8.72 ÷ 1,090 × 100 = 0.8% per night

If negative Swap persists for 10 consecutive nights, it could wipe out your margin because 0.8% × 10 = 8% of your Margin.

Opportunities from Swap: Carry Trade strategy

Not everything is black and white. Some traders use Swap as a “source of income” through the Carry Trade strategy.

Concept

Find currency pairs where:

• Borrow a low-interest currency (like JPY, CHF)
• Buy a high-interest currency (like AUD, NZD, or sometimes MXN, TRY)
• Objective: Receive positive Swap daily

Example: Buy AUD/JPY

• Earn interest on AUD (which is currently 4.35%)
• Pay interest on JPY (which is around -0.10% or nearly zero)
• The difference exceeds 4% annually → Positive Swap!

Risks

Carry Trade is not risk-free. The risk is exchange rate fluctuations which can wipe out all Swap gains.

If AUD/JPY drops 10% in half a year, the exchange rate loss can far exceed the Swap profit.

Carry Trade is suitable during stable markets with clear trends.

Swap-Free accounts: An option for Position Traders

If you want to avoid Swap altogether, some trading platforms offer Swap-Free accounts (or Islamic Accounts).

Advantages:

• No Swap charges regardless of how long you hold the order
• Suitable for Swing Traders and Position Traders
• No worries about Swap eating your profits

Disadvantages:

• Spread may be wider by 1-2 pips
• Some platforms may charge a fixed management fee

Consult and prepare yourself

Before opening an order, what should you do?

1. Check the Swap of the currency pair - see if Swap Long and Swap Short are positive or negative
2. Calculate Swap costs - use the above formulas to know how much you will lose per night
3. Consider holding period - if short-term, no worries; if long-term, think carefully
4. Choose your trading style - Scalper need not worry; Position Trader should decide between Positive Swap or Swap-Free account

How to view Swap info

Most trading platforms (MT4, MT5, and others) display Swap directly:

1. Open Market Watch
2. Right-click on the asset
3. Select Specification or Properties
4. Look for “Swap Long” and “Swap Short”

Alternatively, hover your mouse over the asset name, and info will appear automatically.

Final takeaway: How much does Swap affect you?

Scalper traders (close orders within seconds or minutes) → hardly any impact

Day traders (close within the day) → minimal impact, sometimes none

Swing traders (hold for days or weeks) → significant impact, must consider carefully, possibly need a Swap-Free account

Position investors (hold for months or years) → the highest impact

The key lesson: Before opening an order, “think about” Swap. Don’t let it become a “hidden cost” that eats your money without your awareness.

This practice helps avoid unpleasant surprises when closing trades you thought were profitable.

Investing involves risks and may not be suitable for everyone. Study thoroughly before starting to trade.