Swap Benefits or Rollover in Trading
Swap or Rollover benefits are the difference between the interest rate of the base currency and the counter currency in a currency pair. This difference is added daily to the open position before 10 PM GMT, i.e., when the position remains open from one trading day to the next. This is where the term "Swap Benefits" comes from. The value of the swap benefits varies depending on the type of trade (buy or sell) and the currency pair, and it changes constantly depending on the exchange rate of the pair.
Example:
For the EUR/USD pair in one of the brokerage firms, the swap benefits are as follows:
For buy positions, the swap is -4.18 (charged daily).
For sell positions, the swap is +0.71 (added daily).
This means that for each trading day you keep a buy position open, $4.18 will be deducted from your account, and for each trading day you keep a sell position open, $0.71 will be added to your account, for each standard lot.
Important Note: Unfortunately, brokerage firms that deal directly with banks usually do not offer accounts free from interest-based swaps, because the market continuously operates with these interest rates. So, how do some brokerage firms cancel the interest-based swaps on client accounts? These firms typically handle transactions internally, meaning they do not pass your trades on to the banks, or they cover the swap costs themselves. This may lead to losses for the broker or cause them to charge commissions or administrative fees to offset these costs. Therefore, it is crucial to ask your broker about how they manage accounts without interest-based swap charges.
Stay tuned for the next lesson to learn more about the Forex market!