Swap Forex: what is it, how it is calculated and what are swap-free accounts in Octa

What is a Forex Swap?

Swap is a fee charged for carrying over open positions overnight in the Forex market. Exactly when the swap is removed from your trading account depends on your broker. Most brokers charge it most often between 11 p.m. and midnight server time.

The Forex market is over-the-counter and non-deliverable, meaning you do not own the trading asset. In order not to require calculations, the system automatically closes an open position on the current trading day and opens it the next day. Such a close is considered conditional, as the position is carried over and the swap is charged.

Depending on the swap value and the position, the swap can be negative or positive. In other words, you will either have to pay a commission or receive a commission for holding an open position overnight. This is because the margin system used in Forex trading allows you to use the additional capital provided by the broker. You borrow funds to open a position with your broker.

There is an opinion among traders that Forex swap is nothing more than a broker commission. However, this is not true. Let’s find out how swaps work in the Forex market.

How do swaps work in the Forex market?

Each time you open a position, you are making two transactions: buying one and selling another in a currency pair. So, you are essentially borrowing this money to sell one of the currencies and have to pay interest on the borrowed amount. However, in doing so, the currency you purchase will earn you interest.

If the base interest rate of the currency you are buying is higher than the base interest rate of the currency you are selling, you can earn interest on the rate difference for rolling over an open position to the next day. However, taking into account the broker’s markup, regardless of the direction of the open position (buy or sell), you will have to pay a commission.

So the value of a swap depends on the market and the instrument you are trading. For example, the swap on the same positions EURUSD and USDJPY will be different.

The value of the swap varies depending on:

● online broker

● type of position – Buy or Sell

● type of property

● number of days the position remains open

● nominal value of the position (number of lots).

Why is there a triple swap?

Sometimes a swap is charged for keeping a position open over the weekend, even if you didn’t have it on Saturday and Sunday. These fees are called triple swap. With markets closed on weekends, the triple swap was invented to compensate for this and is charged on either Friday or Wednesday, depending on the relevant market.

Indeed, orders are settled on the Forex market on the second business day from the transaction date (T+2). Since the value date falls on a weekend, the transfer takes place for three days in a row (Monday). So, from Wednesday to Thursday (at midnight), the swap is billed for the past weekend and Wednesday.

In other words, if you hold your position overnight when the triple swap is applied, your order will be charged three times the standard swap.

Are there swap-free accounts?

To make trading more convenient and accessible, many brokers have introduced the concept of swap-free accounts.

Swap-free accounts save the trader from constantly monitoring the size of accounting rates on currencies of a currency pair, facilitate trading and allow the commission for transferring positions to be taken into account in advance when calculating the result financial of planned operations. This is also relevant for clients who cannot use swaps due to their religious beliefs. This determines the second name of this type of account: Islamic accounts.

Charged daily, swap fees accumulate over time, making swaps less favorable. To improve the investment opportunities of its clients, Octa has decided to remove swap fees for all types of trading accounts. These fees will no longer prevent traders from using medium and long term strategies in the financial market. Now they can keep this position open for as long as they see fit and without swap fees.

About Octa

Octa is an international broker providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already used by clients from 180 countries with over 42 million trading accounts . The free educational webinars, articles and analytical tools they offer help clients achieve their investment goals.

The company is involved in a comprehensive network of charitable and humanitarian initiatives, including improving educational infrastructure and short-term relief projects supporting local communities.

Octa has also won over 70 awards since its inception, including the “Best Educational Broker 2023” award from Global Forex Awards and the “Best Global Broker Asia 2022” award from International Business Magazine.