Overnight swap and swap-free accounts

A standard account and a swap-free account can look identical on the order ticket. Both let you buy or sell EUR/USD at around 1.0850. The difference appears after the market closes for the day. A standard account adds or subtracts a small amount called swap. A swap-free account does not.

Swap is not a broker invention. It comes from the interest rate difference between the two currencies in the pair. When you hold EUR/USD, you are effectively borrowing one currency to hold the other. The broker passes that daily interest adjustment to your account. The amount can be positive or negative, so it can add to your balance or subtract from it.

The swap-free version removes that daily adjustment. In its place the broker usually applies another charge. That charge may be a wider spread, a fixed administration fee, or both. The charge is not always labelled swap. Read the contract specifications to find its exact name and how it is calculated.

Neither account type is cheaper in every case. A position held for a few hours may pay almost no swap. A position held for many nights may pay a large total. The only way to know is to work out both totals for the number of nights you expect to hold.

The page has already shown that one pip on one standard lot of EUR/USD equals 10 units of the quote currency. The quote currency here is the second currency in the pair. To turn that into shillings, multiply by the conversion rate. The page used 13 KSh per unit for its examples.

Suppose a standard account charges a swap of 3 pips per night. Multiply 3 pips by 10 units per pip. The result is 30 units per night. Multiply 30 by 13. The result is KSh 390 per night.

Now suppose the swap-free account charges a fixed administration fee of 22 units per night. Multiply 22 by 13. The result is KSh 286 per night. On these numbers the swap-free account is cheaper by KSh 104 per night.

Change the swap to 1.5 pips per night and the comparison flips. Multiply 1.5 by 10 to get 15 units. Multiply 15 by 13 to get KSh 195. The swap-free account at KSh 286 is now the more expensive one. The answer depends on the numbers, not on the account label.

A swap-free account often carries a wider spread than a standard account. Spread is the gap between the buy price and the sell price. You pay it once when you open the position and again when you close it. A wider spread raises the cost of every trade, whether or not you hold it overnight.

Some brokers also apply a fixed administration charge on swap-free accounts. That charge may be quoted per night, per lot, or per position. It may be charged in the account currency rather than in shillings. Convert it before you compare, using the same method as above.

The swap rate itself can vary. Brokers may round it, apply it only on certain weekdays, or charge a triple amount on one day of the week to cover the weekend. These details sit in the contract specifications, not in the headline rate.

Add the spread cost to the administration charge before you decide. A swap-free account with a wider spread can cost more than a standard account with swap, especially if you trade often. The comparison is only fair when both totals include every charge.