Swing and position trading
On EUR/USD around 1.0850, one pip on one standard lot is 10 units of the quote currency, converted at the current rate. This lesson shows how a four-day trade can lose part of its profit to swap, and how to work out whether the hold is worth it.
Compare the cost of a short hold with the cost of a long hold
A short hold pays the spread once. A long hold pays the spread once and then pays swap for every night the position stays open. The spread is a one-off cost at entry. The swap is a repeating cost that arrives each night. For a trade that lasts one session, the spread is the whole cost. For a trade that lasts five nights, the swap joins the spread and can grow larger than it.
Work out the swap before you decide the holding period. Suppose the swap on EUR/USD is 5 units of the quote currency per night for the size you plan to use. A three-night hold costs 15 units. A ten-night hold costs 50 units. The move you expect must cover both the spread and the swap. If the expected move is 40 pips on a size where one pip is 1 unit, the gross gain is 40 units. The spread might take 2 units, and a ten-night swap takes 50 units. The net result is negative even though the price moved in your favour.
This comparison changes the decision. A trade with a small expected move and a long hold is a poor combination. A trade with a larger expected move and a shorter hold is a better one. The swap rate varies between brokers and between pairs. It also changes over time. Look up the current rate on your own platform rather than relying on a figure from a lesson.
Calculate the swap cost for the number of nights you plan to hold
Find the swap rate for the pair and the size you intend to trade. The platform shows it as a number of units of the quote currency per night, or as a percentage. Use the unit figure if it is available. Multiply that figure by the number of nights. The result is the total swap cost in the quote currency. On EUR/USD the quote currency is the US dollar, so the swap is quoted in dollars before conversion.
Convert the total to shillings using the current rate. If the total swap is 25 units of the quote currency and the KES rate is 130, the cost is KSh 3,250. This is the amount the position must earn before it breaks even after swap. Add the spread cost to get the full cost of the hold. If the spread was 2 units, the full cost is 27 units, or KSh 3,510 at the same rate.
The broker may round the swap figure. It may also charge triple swap on one weekday to cover the weekend. The exact charge appears on your platform and on your statement. Check it there. A swap that looks small per night becomes large over many nights. A position held for twenty nights pays twenty times the nightly figure, plus any triple charges.
Weigh the expected move against the total holding cost
Estimate the move you expect from the trade. This is not a promise of profit. It is a planning figure. If you expect a 60-pip move and the total holding cost is 20 units, the trade needs to reach 20 units of profit just to cover costs. The remaining 40 units is the part you are actually trading for. If the expected move is smaller than the total cost, the hold is not worth taking at that size.
Reduce the size or shorten the hold when the cost is too high. A smaller size lowers the swap per night because swap scales with the number of lots. A shorter hold lowers the number of nights. Both changes reduce the total cost. Neither change removes the risk of the price moving against you. The swap is a certain cost. The price move is not certain.
Overnight gaps are the other cost of a long hold. The market can open far from where it closed. A stop loss may not fill at the level you set. This risk grows with every night you hold. A swing trade carries gap risk that a trade closed within one session does not carry. Position trading carries it for weeks. The swap is visible and calculable. The gap is not.
Four days on EUR/USD: 40 pips, then swap
| Step | Amount | Note |
|---|---|---|
| Instrument and size | EUR/USD, 0.10 lots | 0.10 of a standard lot, so pip value is one tenth of the standard figure |
| Pip value at this size | 1 unit of the quote currency per pip | One standard lot is 10 units per pip; 0.10 lots is one tenth of that |
| Entry | 1.0850 | Price used for the whole example |
| Exit after four days | 1.0890 | 40 pips in favour of the position |
| Gross result | 40 units of the quote currency | 40 pips x 1 unit per pip |
| Swap | 3 nights charged | Swap is charged per night held; many brokers charge triple on one weekday, and the amount varies between brokers |
| Swap cost in the quote currency | 12 units | 4 units per night x 3 nights; this rate varies between brokers and by direction |
| Net result in the quote currency | 28 units | 40 minus 12 |
| Converted to KSh | KSh 3,640 | 28 units x the KES rate used here, 130 |
The broker may round the swap, charge triple swap on one weekday, and quote a slightly different conversion rate at the moment you close. Check the swap figure on your own platform before you hold a position overnight.
Doing it once, step by step
Follow these steps to compare a short hold with a long hold and to calculate the swap cost before you decide. Each step uses the figures from your own platform, not from this lesson.
- 01
Find the swap rate
Open the instrument details on your platform and look for the swap or overnight fee. Note whether it is quoted in units of the quote currency or as a percentage. Write down the figure for the size you plan to trade. If the platform shows different rates for long and short positions, use the one that applies to your direction.
- 02
Count the nights
Decide how many nights you expect to hold the position. Count each night the position remains open, including weekends if the broker charges for them. Check whether the broker applies a triple charge on a particular weekday. Add that extra charge to your total.
- 03
Multiply to get the total swap
Multiply the nightly swap by the number of nights. Add any triple charge. The result is the total swap cost in the quote currency. For example, 5 units per night for five nights is 25 units. If one night is charged triple, the total becomes 5 units times seven nights, or 35 units.
- 04
Convert to shillings
Multiply the total swap by the current KES rate. If the rate is 130 and the total is 25 units, the cost is KSh 3,250. Use the rate shown on your platform at the time you check. The rate moves, so the shilling cost moves with it.
- 05
Add the spread and compare with the expected move
Add the spread cost to the total swap. The sum is the full cost of the hold. Compare it with the move you expect from the trade. If the expected move is smaller than the full cost, the hold is not worth taking at that size. Consider a shorter hold or a smaller size.
- 06
Check the gap risk
Review the price history around the times you plan to hold. Look for gaps between the close of one session and the open of the next. A stop loss may not fill at your chosen level if a gap moves past it. This risk exists for every night you hold. It cannot be calculated in advance like the swap.
The mistake most people make here
Many beginners open a trade, watch it move 40 pips in profit, and hold for a week without ever checking the swap. They assume the only cost is the spread they paid at entry. Instead, look up the swap rate for the pair before you decide to hold overnight, and multiply it by the number of nights you expect to keep the position open. If the swap eats a large share of the move you expect, a shorter hold or a smaller size may suit you better.Check yourself
You hold 0.20 lots of EUR/USD for five nights. The swap is 5 units of the quote currency per night. What is the total swap cost?
5 units x 5 nights = 25 units of the quote currency. If the KES rate is 130, that is KSh 3,250.
A trade gains 30 pips on 0.10 lots. Swap costs 10 units of the quote currency. What is the net result before conversion?
30 pips x 1 unit per pip = 30 units. 30 minus 10 = 20 units of the quote currency.
Questions that come up next
Why does the swap rate change between brokers?
Brokers set their own swap rates based on the interest rate difference between the two currencies in the pair, plus their own markup. The markup covers the broker's cost of funding the position overnight. Because markups differ, the same EUR/USD trade can cost different amounts at different brokers. Always check the swap rate on your own platform before you hold a position overnight.
How do I find the swap rate for a pair on my platform?
Open the instrument's specification page on your trading platform. Look for a field called swap, rollover, or overnight financing. It is usually shown as a number of units of the quote currency per lot per night, or as an annual percentage. If you cannot find it, ask your broker's support desk. The rate can change, so check it again before each long hold.
What is triple swap and when does it apply?
Triple swap is a charge of three nights' swap in a single night. It covers the weekend, when the market is closed but the position still carries financing cost. Most brokers apply it on Wednesday or Friday, depending on the pair. The exact day varies between brokers. Check your platform's calendar or the instrument specification to see when triple swap applies to EUR/USD.
Can I avoid swap by closing before the daily rollover time?
Yes. If you close the position before the broker's daily rollover time, you avoid that night's swap. The rollover time is usually around 22:00 GMT, but it varies between brokers. Closing before rollover turns a long hold into a series of short holds, which means you pay the spread again on each re-entry. Compare the spread cost of re-entering with the swap cost of holding to see which is cheaper.
Does a longer hold always mean a higher swap cost?
Yes, if the swap rate stays the same. Swap is charged per night, so more nights means more cost. However, the swap rate itself can change from day to day. It can also be positive, meaning the broker pays you, though this is less common. For most retail positions the swap is a cost. Multiply the current rate by the number of nights you plan to hold to estimate the total.
How do I convert the swap cost from US dollars to Kenyan shillings?
Multiply the swap cost in units of the quote currency by the current KES exchange rate. For example, if the swap cost is 25 US dollars and the rate is 130 KES per dollar, the cost is KSh 3,250. The rate your broker uses at the moment of conversion may differ slightly from the rate you see elsewhere. Check your statement for the exact amount deducted.
The words used on this page
- swap
- A fee charged or paid for holding a position overnight. It is based on the interest rate difference between the two currencies in the pair. The broker adds its own markup, so the rate varies between brokers.
- spread
- The difference between the buying price and the selling price of a pair. You pay it once when you open a trade. It is the main cost for short holds.
- pip
- The smallest standard move in a currency pair's price. For EUR/USD, one pip is 0.0001. The value of one pip depends on the lot size you trade.
- lot
- A standard unit of trade size. One standard lot is 100,000 units of the base currency. Smaller sizes, such as mini lots and micro lots, are also available.
- rollover
- The daily time when the broker closes and reopens your position for financing purposes. It is when swap is charged. The exact time varies between brokers.
- quote currency
- The second currency in a pair. In EUR/USD, the quote currency is the US dollar. Swap and pip values are often quoted in this currency before conversion to shillings.
What to take away
- A long hold pays the spread once and swap every night, so the swap can become the larger cost.
- Work out the swap before you decide how long to hold: multiply the nightly rate by the number of nights.
- Convert the swap to shillings and add the spread to find the full cost the trade must cover.
- Check the swap rate on your own platform, because it varies between brokers and can change.