Overnight interest

What is swap?

Swap (also known as overnight interest, inventory fee, adjustment of inventory fees) is the interest that the trader pays or charges the dealer if the position is still open after the specified time.

Since foreign exchange refers to the exchange between the currencies of the two countries, foreign exchange transactions involve not only the buy and sell of two currencies, but also the interest rates of two currencies, which usually do not have equal interest rates.

  • When you buy a higher interest rate currency (i.e. sell a lower interest rate currency at the same time), you can earn interest from ADSS, which is the positive swap inventory fee shown in the specifications of the MT4 symbol.
  • Conversely, when you buy a lower interest rate currency (i.e. sell a higher interest rate currency at the same time), you pay interest to ADSS, which is the negative swap inventory fee shown in the specifications of the MT4 symbol.

In the ADSS MT4 trading system, the overnight interest is denominated in USD (Dollar).

Suppose you want to trade USD/JPY (Dollar/Yen), open the specifications of MT4 symbols, see that the purchase charge adjustment inventory fee for the currency pair is 3.15, and the selling monotony period inventory fee is -6.875.

This means that buying a first-hand USD / JPY (creating a buy order) can earn an interest of $ 3.15, and selling a first-hand USD / JPY (creating a sell order) requires an interest of $ 6.875. It can be seen that the interest rate of the US dollar is higher than the interest rate of the Japanese yen.

Summarize the three main characteristics of swap:

  1. Swap rates fluctuate with currency rates;
  2. When a trader holds an overnight currency pair order, the corresponding interest will be generated, which is calculated on a daily basis;
  3. Depending on the transaction type of the order and the direction of buying and selling, the overnight interest may be positive or negative. Holding the position for too long may significantly increase the transaction cost or profit of the trader.

How long does it take to incur swap?

As long as you hold a position for more than one trading day, you will earn or pay swap; if you open and close the position on the same trading day, then no swap will be incurred.

A trading day is based on the closing time of the New York foreign exchange market, which is 5 pm Eastern Time (abbreviated as EST). In daylight saving time, the trading day ends at 5 pm Eastern Time, which is 5 am Taipei time; in winter time, the trading day ends at 5 pm Eastern Time, 6 am Taipei time.

If you do not close your existing position before 5 PM EST, the position will be automatically extended to the next trading day, and your account will automatically settle interest at 5 PM EST. If the position is established after 5 pm EST, unless you will hold it until 5 pm EST on the next trading day, you will not be able to earn or pay swap.

It should be noted that although the foreign exchange market is closed on Saturdays and Sundays, most liquidity providers will still calculate the swap for these two days. For this reason, the foreign exchange market will put these two days of interest on Wednesday. Calculated, so the interest generated by the position after 5 pm EST on Wednesday will be three times that of the overnight position on other days. Click here to see how to calculate the number of swap days.

What does the 3-day swap fee mean?

3-day swap fee means calculating three times the swap fee. The contract details of the MT4 trading symbol indicate the day after each week, the trading account will be calculated 3 times the swap fee. Take the AUD / USD inventory fee information in the figure below as an example. As long as you hold the AUD/USD position from Wednesday to Thursday, your trading account will incur three times the swap fee.

Why do I pay three times the interest from Wednesday to Thursday?

In financial markets, each transaction has a delivery date;

Position Stake Delivery Day No of days to calculate overnight interest
Monday to Tuesday From Wednesday to Thursday 1 day
Tuesday to Wednesday From Thursday to Friday 1 day
Wednesday to Thursday From Friday to Next Monday 3 days (including 2 days on weekends)
Thursday to Friday From Next Monday to Next Tuesday 1 day
Friday to Next Monday From Next Tuesday to Next Wednesday 1 day

We can see from the table above that the swap generated from holding a position from Wednesday to Thursday is three times that of a weekday, because the delivery date is next Monday, with a weekend away. Although the foreign exchange market is closed on Saturdays and Sundays, most liquidity providers still calculate swap for these two days. For this reason, the foreign exchange market calculates the interest for these two days on Wednesday.

How do I check swap?

Swap varies for each currency. Please follow these steps to view swap fee in the MT4 trading system: •

Desktop MT4

  1. First click "Market Watch" icon under View, there will be a display of currency symbols;
  2. For example to check the swap rate of EUR/USD, click EUR/USD and press the right mouse button;
  3. After the list appears, select Specification;
  4. In the Contract Specifications window, you can see the "Swap Long" and "Swap Short", which is the overnight interest paid by buying and selling this symbol. •

Mobile Version MT4

  1. Open MetaTrader 4 Mobile App;
  2. First click the "Quote" icon, thethere will be a display of currency symbols;
  3. Let's say we want to see the swap rate of EUR/USD, click EUR/USD, and then select "Details" or "Trading Symbol Properties" to see the Swap Long and Swap Short fee.

Will CFDs generate overnight interest/swap?

THE CFDS OFFERED BY ADSS ARE DIVIDED INTO TWO TYPES: SPOT CFDS AND FUTURES CFDS WHICH THE SPOT CFDS INCURS OVERNIGHT INTEREST AND FUTURE CFDS DO NOT GENERATE OVERNIGHT INTEREST. The symbol code for the spot contract is. CASH, for example, US500.CASH is the spot CFD for the Standard and Poor's 500 Index (S&P), and futures contracts contain months in the symbol code, such as US500.MAR0 is the S&P 500 Index Futures CFD.

Why is there a positive or negative for SWAP?

Since foreign exchange refers to the exchange between the currencies of the two countries, foreign exchange transactions involve not only one buy and sell of two currencies, but also the interest rates of two currencies, which usually not equal.

  • When you buy a higher interest rate currency (i.e. sell a lower interest rate currency at the same time), you can earn interest from ADSS, which is the positive adjustment inventory fee shown in the specifications of the MT4 symbol.
  • Conversely, when you buy a lower interest rate currency (i.e. sell a higher interest rate currency at the same time), you pay interest to ADSS, which is the negative inventory fee shown in the specifications of the MT4 symbol.

Why rollover rates are triple charge on Wednesday?

This is because spot forex trades have a 2-day settlement period. If a position is opened after 5:00 PM EST on Wednesday, it will not be settle until after Friday. Therefore, to cover the weekends, 2 extra days of swap is charged.