Swap, carry and triple-swap Wednesday
Lesson 13 · about 10 min
Hold an FX position past 17:00 New York and something is added to or subtracted from your account, every day, whether price moved or not. This is the swap, and for anyone who holds trades for more than a day it is often a larger cost than the spread.
Where swap comes from
Every FX position is a long in one currency and a short in the other. Currencies earn interest. When you are long AUD/JPY you are, in effect, holding Australian dollars (which earn the Australian rate) and owing yen (on which you pay the Japanese rate). The net is credited or charged to you each night.
The approximate formula, before the broker's markup:
daily swap ≈ notional in base × (base rate − quote rate) ÷ 365, converted to account currency
Example. Long 1 standard lot AUD/JPY. Suppose the Australian policy rate is 4.35% and the Japanese rate is 0.10% (illustrative; look up current rates).
- Differential = 4.25% per year.
- On 100,000 AUD: 100,000 × 0.0425 = 4,250 AUD per year.
- Per day: 4,250 ÷ 365 = 11.64 AUD.
- At AUD/USD 0.6500: about $7.57 per night, credited.
Short the same pair and the sign flips: you pay about $7.57 per night, because you are holding the low-rate currency and owing the high-rate one.
That is the theory. In practice the broker quotes a swap rate per lot per night, and it is always worse than the theoretical figure in both directions, because the broker adds a markup. It is common for both the long and the short swap to be negative on a pair whose rates are close together.
| Pair | Theoretical swap (1 lot, long) | Broker long swap (illustrative) | Broker short swap (illustrative) |
|---|---|---|---|
| AUD/JPY | +$7.57 | +$5.50 | −$9.50 |
| EUR/USD | −$3.00 (if USD rate > EUR) | −$5.00 | +$1.50 |
| USD/JPY | +$11.00 | +$8.00 | −$14.00 |
| EUR/GBP | −$2.50 | −$4.00 | +$0.50 |
| USD/TRY | large positive | +$30 | −$95 |
The exotic row is the point of the previous module: short USD/TRY at −$95 a night on one standard lot is $475 a week before price does anything.
Carry
A "carry trade" is a position held specifically to collect positive swap: long the high-rate currency, short the low-rate one. Funds do it in size. For a retail trader the numbers are small and the risk is not: the high-rate currency is usually high-rate because it is risky, and in a risk-off move (Module 5) it can drop far more in a day than a year of swap. Carry is a reason to prefer one direction when you already have a trade idea; it is not a strategy on its own at retail size.
Swap in pips and how it compounds
Convert the swap into pips to compare it with the spread:
swap in pips per night = swap per lot ÷ pip value per lot
−$5.00 per night on a standard lot of EUR/USD is −0.5 pips per night. On a ten-night hold that is −5 pips, more than five times the spread. On a 60-pip target, the swap has quietly taken 8% of the profit.
| Hold | Nights charged (incl. triples) | Swap at −0.5 pips/night | As % of a 60-pip target |
|---|---|---|---|
| 1 night | 1 | −0.5 pips | 0.8% |
| 1 week | 7 | −3.5 pips | 5.8% |
| 2 weeks | 14 | −7 pips | 11.7% |
| 1 month | 28 to 31 | −14 to −15.5 pips | 23% to 26% |
Note that one calendar week is seven nights of swap, not five. That is the triple.
Triple-swap Wednesday
Spot FX settles two business days after the trade. A position rolled at 17:00 ET on Wednesday moves from a Friday value date to a Monday value date, which is three calendar days later. So Wednesday's roll charges (or credits) three nights of interest at once. Thursday, Friday and Monday rolls are one night each, and there is no roll on Saturday or Sunday because the market is closed.
| Roll at 17:00 ET on | Nights of swap applied |
|---|---|
| Monday | 1 |
| Tuesday | 1 |
| Wednesday | 3 |
| Thursday | 1 |
| Friday | 1 |
A few brokers apply the triple on a different day for non-FX CFDs, and public holidays in the US or the currency's home country can shift it. Your broker's contract specification page will say.
For a trader on the wrong side of a large swap, holding through Wednesday 17:00 ET is a meaningful decision. For a trader on the right side, it is a small bonus. Either way, know which it is before 16:59.
Key idea: Swap is the interest rate differential, marked up by your broker, charged every night at 17:00 ET, and three times on Wednesday. On any trade held more than a few days, put it in the plan next to the spread.
Swap-free accounts
Some brokers offer "Islamic" or swap-free accounts that replace the nightly swap with a fixed administrative fee after a grace period. If you are eligible and hold trades for many days, compare the fee with the swap you would otherwise pay; it is sometimes cheaper, sometimes not, and the broker usually restricts which pairs qualify.
Try it: On your platform, open the contract specification for EUR/USD, USD/JPY and one cross. Write down the long and short swap per standard lot in your account currency. Convert each to pips per night. Then compute the swap cost of a two-week hold in the more expensive direction, including two Wednesdays. Compare it with the spread on the same pair.
Recap
- Swap is the net interest between the two currencies you are long and short, applied at 17:00 ET on every open position.
- Brokers mark it up, so the credited side is smaller and the charged side larger than theory, and both can be negative.
- Convert swap to pips per night to compare it with the spread; on multi-day holds it often dominates.
- Wednesday's roll charges three nights because of T+2 settlement over the weekend.
- Carry is a tilt, not a retail strategy; the high-rate currency is usually the one that gaps against you.
See it drawn
Original diagrams for the ideas on this page. Illustrative, not real market data.