Swap in Forex Trading

What is Swap in Forex?

A swap (also called a rollover fee) is interest paid or earned when you hold a trade overnight (past 5:00 PM ET).

Do I pay or earn swap based on whether I buy or sell a currency pair?

No, it depends on the interest rate difference between the two currencies in the pair, not whether you simply buy or sell.

If you buy a currency pair e.g., EUR/USD

You are:

• Buying the base currency (EUR)
• Selling the quote currency (USD)

You will:
Earn interest on EUR
Pay interest on USD

So your net swap = interest earned on EUR minus interest paid on USD

If EUR has a higher interest rate than USD, you earn swap.
If EUR has a lower interest rate than USD, you pay swap.

Example:

Imagine:

• EUR interest rate = 4%
• USD interest rate = 5.5%

If you buy EUR/USD, you:

• Earn 4% on EUR
• Pay 5.5% on USD
• Net: you lose 1.5%, so you’ll pay a swap fee overnight.

If you sold EUR/USD, you:

• Earn 5.5% on USD
• Pay 4% on EUR
• Net: you gain 1.5%, so you’d earn a swap.

So, buying a pair doesn’t mean you automatically earn swap and selling a pair doesn’t mean you automatically pay swap. It’s all about the interest rate difference. If the first currency (base) has a higher interest rate than the second (quote), buying earns swap. If the base has a lower rate, buying incurs swap cost.

Summary

Swap is based on the interest rate difference between the two currencies.
Buying ≠ always earning swap.
Selling ≠ always paying swap.

You pay or earn swap depending on which currency has the higher interest rate.