Overnight financing costs (swap, or rollover) confuse most new traders, partly because the number changes daily and partly because most brokers don't explain the mechanism clearly. Here's the plain version: swap is the cost, or credit, of holding a leveraged position overnight, and it's driven by the interest-rate differential between the two currencies (or the underlying financing rate for other instruments) in the pair you're trading.
The Basic Mechanism
If you're long a currency with a higher interest rate against one with a lower rate, you typically earn a small credit overnight. Go the other way — long the lower-rate currency against the higher-rate one — and you typically pay a small charge. The size depends on the current rate differential, your position size, and the broker's specific swap calculation, which usually includes a small markup over the pure interbank rate differential.
Triple-Swap Wednesdays, Explained
Spot FX settles two business days after the trade date. A position held Wednesday into Thursday settles on Saturday and Sunday — non-business days — so the standard convention is to charge (or credit) three days of swap on Wednesday to account for the weekend. This isn't a broker markup or a penalty; it's an industry-standard settlement convention that applies across virtually all FX brokers.
- Swap rates change daily — always check your platform's live rate before holding a position overnight, rather than relying on memory of last week's figure
- Swap applies per lot held, so position size directly scales the cost or credit
- Longer-term positions (swing or position trading) should factor cumulative swap into the overall trade thesis, not just the entry and stop levels
