What is a forex swap, and when is it charged?
A swap is the cost, or credit, of keeping a forex position open overnight. When you buy a pair, you are in effect holding the first currency and borrowing the second. If the currency you hold earns more interest than the one you borrow, you may receive a credit; if it earns less, you pay. Brokers add their own pricing on top, which is why both sides of a pair can be negative.
The charge applies only to positions still open at the rollover. Pepperstone's swap guide gives that time as 5 pm New York, or 7 am in eastern Australia, although the same guide also mentions 00:00 server time. If you want to see the swap on each symbol before you trade, you can open a Pepperstone account and check it on the demo.
How do brokers calculate overnight swap charges?
Most brokers start from the market's overnight rate for the currency pair, called the tom-next rate, and adjust it with their own mark-up. Pepperstone publishes its formula: daily swap = (one point / exchange rate) × (trade size × tom-next charge). It says it sources tom-next rates from a tier-one global investment bank.
In practice, your platform turns all of this into a swap value per lot, usually in points. A simple example: if EUR/USD shows a long swap of −5 points and one point on one standard lot is worth $1, holding one lot long costs about $5 a night, and about $15 on Wednesday. Those numbers are for illustration only.
What goes into a forex swap
| Input | What it is | Effect |
|---|---|---|
| Interest-rate gap | Difference between the two currencies' rates | Sets the direction and size |
| Tom-next rate | The market's overnight rate for the pair | The base the broker starts from |
| Broker mark-up | The broker's own charge | Makes both sides cost more |
| Trade size | Lots or notional amount | Scales the result |
| Days counted | One per night; three on Wednesday | Multiplies the charge |
How are swap rates calculated on an Australian trading account?
The same way as anywhere else; the regulator does not change the formula. At Pepperstone Group Limited, Pepperstone's Australian company, the swap uses the tom-next approach above and is applied at the rollover. Positions open past 5 pm New York time on Wednesday are treated as settling later, so they are charged or credited for three days.
Your base currency matters. If you trade EUR/USD on an AUD account, the swap is worked out in the pair's currency and then converted into Australian dollars, so the AUD amount moves a little with the exchange rate.
How do brokers calculate overnight financing?
On index, commodity and share CFDs, the overnight charge is usually called financing rather than swap. It is generally based on a benchmark interest rate for the currency of the market, plus or minus a broker charge, applied to the full value of your position each night. UK spread bets work the same way: Pepperstone charges overnight fees on spread bets held past 10 pm UK time.
Pepperstone's perpetual CFDs use a different system: a funding rate set weekly in advance and applied daily at 5 pm New York time.