What is a Swap? | FXTM Learn Forex in 60 Seconds


A swap in forex refers to the interest earned or paid for keeping a trade open overnight. There are two kinds of swaps; Swap long (for long positions) and Swap short (for short positions). Both of them are expressed in pips per lot. Swaps are part of the Contract Specification for each financial instrument. Here’s an example: If a trader shorts on EURUSD by 1 standard lot on a Thursday, and keeps the position open overnight, closing it on Friday, the Swap short formula looks like this: Now, if the trader goes long on EURUSD by 1 standard lot on Thursday, and he only closes his position on the following Tuesday, the swap formula would look like this: In case the same position is kept open until the following Thursday, that would make it 7 nights: Weekend swaps are applied on Wednesdays. Here is an example of that: Trader shorts EURUSD on Monday with 1 Standard lot and closes on Thursday. So, the position remained open for 3 nights. On Wednesday midnight, the weekend swaps will be applied as well, raising the nights to 5: Now you know how swaps work! Till next time, folks. Trade wisely.

Leave a Reply