Overnight Swap
A forex position held overnight earns or pays interest. It's set by the interest rate gap between the two currencies, the platform adds a markup, and Wednesday night counts three days.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
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Text version · Forex Basics, lesson 9: “Overnight Swap”
A forex position held overnight earns or pays interest. It's set by the interest rate gap between the two currencies, the platform adds a markup, and Wednesday night counts three days.
Buying one currency means borrowing another
Buy USD/JPY = hold dollars, borrow yen. Hold overnight and you earn dollar interest and pay yen interest; the difference is the swap (rollover).
The broker marks up both sides
The broker takes a little markup on top of the rate gap: the side earning interest gets less and the side paying interest pays more. When the rate gap is small, both directions may end up paying.
Wednesday night pays three days
There's no settlement at weekends, so most brokers catch up all at once on Wednesday night: the triple swap. Holding 5 nights in a row from Monday to Friday is charged as 7 days.
Carry trade: earn the rate gap, carry the FX risk
Buying a high-yield currency and selling a low-yield one to earn the rate gap is a carry trade. A night's interest on 1 lot is worth only a pip or two, so a move of a few dozen pips against you can wipe out months of interest.
Key takeaways
- Holding overnight means earning or paying a swap: a long earns the base currency's rate and pays the quote currency's rate; a short is the reverse.
- The platform marks up both directions, so the side that earns gets less and the side that pays pays more.
- Most platforms charge three days of swap on Wednesday night to cover the weekend.
- A carry trade earns the rate gap, but a move of a few dozen pips against you can wipe out months of interest.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Keep the default Buy: how much do you receive "Per night"? Holding 5 nights, why are "Days charged" 7?
- Switch to Sell USD/JPY: what does the nightly amount become? Why do you pay more than a Buy receives?
- Set both rates to 2.00%: with a 0 rate gap, what are Buy and Sell per night?
- Set 3.0 lots and 10 nights: how many pips in total does "Roughly equals" show?
Quiz and explanations
- 1. You're long 1 lot of USD/JPY (notional $100,000). The dollar rate is 5%, the yen rate 0.5% and the platform markup 0.5%. Roughly what's the swap each night?
- Answer: +$10.96.Net rate = 5% − 0.5% − 0.5% = 4%; $100,000 × 4% ÷ 365 ≈ $10.96. Positive means you receive it.
- 2. If you hold a position over Wednesday night, how many days of swap are usually charged?
- Answer: 3 days.Nothing settles over the weekend, so most platforms catch up in one go on Wednesday night and charge 3 days.
- 3. What's the biggest risk of a carry trade?
- Answer: Losses from the exchange rate moving against you can far exceed the interest earned.A night's interest on 1 lot is only worth a pip or two, so one move of a few dozen pips against you can cancel out a long stretch of interest.
Terms in this lesson
- carry trade (Carry Trade): Buying a high-interest currency and selling a low-interest one to earn the rate gap, though an adverse exchange rate move can far outweigh the interest.
- swap (rollover) (Swap / Rollover): Interest charged or paid for holding a forex position overnight, based on the two currencies' rate gap minus the broker's markup.
- lot (Lot): The unit of trade size in forex: 1 standard lot = 100,000 units of the base currency; 0.1 is a mini lot and 0.01 a micro lot.
- triple swap (Triple Swap): Most brokers charge (or pay) three days of swap on Wednesday night to cover the weekend.