Understanding Forex Swaps

A swap in forex refers to the interest that is either earned or paid for keeping a trade open overnight. Swaps are integral to the contract specification for each financial instrument and are expressed in pips per lot.

Types of Swaps

  • Swap Long: The interest calculation used for long (buy) positions held overnight.
  • Swap Short: The interest calculation used for short (sell) positions held overnight.

Swap Calculation and Timing

Standard Overnight Swap

A swap is typically applied once for keeping a position open from one trading day to the next.

Example: If a trader shorts EUR/USD by one standard lot on a Thursday and closes the position on Friday, the swap short formula is applied for one night.

The Weekend Roll (Triple Swap)

Weekend swaps are applied on Wednesdays at midnight. This means that a position held open over Wednesday midnight will incur or earn interest calculated for three nights (compensating for the upcoming Saturday and Sunday when the market is closed).

Example of Triple Swap Application:

A trader shorts EUR/USD with one standard lot on Monday and closes the position on Thursday.

  1. The position remained open for three standard nights (Monday, Tuesday, Wednesday).
  2. Because the position was open through Wednesday midnight, the weekend swaps are applied.
  3. The total number of swap nights applied is five (3 standard nights + 2 weekend compensation nights).

In cases where a position is held for extended periods (e.g., seven consecutive nights), the swap is calculated based on seven individual night calculations, which includes the Wednesday triple swap.


Detailed Summary

Forex swaps represent the interest earned or paid when a trading position is held open overnight. These swaps are a defined part of the contract specification, measured in pips per lot, and vary depending on whether the position is long (buy) or short (sell). Typically, a swap is applied once per overnight hold. A significant exception is the Weekend Roll (Triple Swap), which is applied on Wednesday nights to account for the closure of the market on Saturday and Sunday, resulting in the calculation of three nights' interest instead of one.

Key Takeaways

  • A forex swap is the interest earned or paid for keeping a trade open overnight.
  • Swaps are an integral part of the contract specification, expressed in pips per lot.
  • Swap Long applies to overnight buy positions.
  • Swap Short applies to overnight sell positions.
  • A standard overnight swap is typically applied once per night the position is held open.
  • The Weekend Roll (Triple Swap) is applied on Wednesdays at midnight.
  • The Triple Swap calculates interest for three nights (compensating for Saturday and Sunday).
  • If a position covers Wednesday midnight, the total swap nights accrued are significantly increased (e.g., a three-day hold from Monday to Thursday incurs five swap nights).