- How to Trade Forex Swaps: Interest Collection Strategy 💲📈
- Forex Swap - Defining the Jargon:
- Forex Swap Rates Comparison
- How Does a Swap Work In Forex?
- The Importance of Swaps & Spreads in FX
- What Is A Forex Swap Example?
- How To Earn Swap In Forex?
- FAQ Categories
- How To Avoid Swap Fees In Forex?
- Rollover Rates
How to Trade Forex Swaps: Interest Collection Strategy 💲📈
If you have just started trading or have been trading for a bit you may be asking what this swap or rollover fee is that keep popping up on my trades. Also if you are a scalper you may have never even seen this fee.
Either way you should take a look into what these are so it is a good idea to keep reading and find out.
So What Are Swap Fees In Forex?So you will only get charged a swap fee when you keep a trade open overnight.
This fee is basically the difference in interest rate between two different currencies of the particular pair you have the open trade on.
Forex Swap - Defining the Jargon:
This calculation comes down to if you are in a long or short.
Forex Swap Rates Comparison
How Does a Swap Work In Forex?
Since it is the difference in interest you can either be paid that difference or charged it based on the currency pair you are trading. If you are trading on margin you make money on the interest for long positions and then pay the interest on the short trades. If you are netting a profit this is considered a “carry”.
If you only take trades that will result in a positive interest in your account you are considered a carry trader.
I personally have never worried about this as I have never kept a trade longer than a week or I should say 5 days since I have never kept a trade open over the weekend.
Well I take that back maybe twice I have and actually, both times resulted in a lot more profits.
I don’t like not knowing what the week is going to open with.
With the bounce back strategy I use I trade on Mondays and Tuesdays but always close at the latest by Friday mornings. Yes even if I am in a loss I close as well.
So if the carry is positive you get that in your account and if negative it is taken from your account. With most brokers it is auto calculated into your trade.
The Importance of Swaps & Spreads in FX
So a lot of times with MT4 you will see you are like $10.00 in profit or something like that down below then you look up and it only shows something like $9.11 in profit that is where the spread and fees (like the swap fee are calculated.
Most swap fees for Major Currencies are not that much when you get into exotics and gold it can be much more and will vary a lot.
I wouldn’t look too much into if you are just starting out. If you are going to do exclusively long swing trades and looking to hold onto trades for weeks at a time then definitely start doing your research and get a couple sites and calculators so you stay up to date on it.
What Is A Forex Swap Example?
Trading 1 lot of EUR/USD (short) with an account denominated in EUR
Swap fee: (10 * 0.54 * 1) / 10 = $0.54
For forex, the Swap Calculator works as follows:
Swap = (Pip Value * Swap Rate * Number of Nights) / 10
How To Earn Swap In Forex?
So you are going to be a swing trader and want to find out how to squeeze every dollar out of a trade which is a good idea.
First you would want find the high and low yielding forex pairs:
Low yielding examples: JPY, CHF, EURO
High yielding examples: AUD, NZD, ZAR (South African Rand)
So lets take EURO which is at around 0% currently and AUD which is around 2%.
So you can earn 2% interest buging AUD with EUR otherwise known as shorting (selling) EURAUD.
Very easy isn’t it? Not so fast. So this would basically boil down to a pip a day in interest but what if you are down 50 pips with the actual trade?
Then you would be losing a lot of money still. If you are trend trader this is where carrying would assist you. Let’s say EURAUD is in a downtrend and you short the trade and are positive 50 pips.
You can consider the carry an added bonus.
It is tough to put this all together especially in the beginning. I wouldn’t worry about the swap fee in the beginning.
Just looking for your confirmations on getting in on your strategy on not worry about if I take this trade am I going to be charged a swap fee.
How To Avoid Swap Fees In Forex?
This is another way to look at things much easier.
Again you can trade the trend that benefits you where you will carry into your account overnight that is always an option or you can go another round.
Trade Intraday where you close your trades out by no later then 5pm EST when the New York Session closes.
This is a simple way to do things and avoid the swap fee and how I actually trade the majority of the time.
Those are the two ways I have found to avoid swap fees.
So as you can see based on the way you trade is where swap fees will come into play. There are ways to avoid them but don’t worry about it until you are done demoing.
Definitely don’t let it steer you completely away from swing trading if that is a style you like. Your wins will likely outweigh any swap fees.
You can also look at different brokers if you spreads and other fees a much smaller with a different broker this could also offset your swap fees.
I hold trades longer then a day with probably about 10-20% of my trades. This is do to either a severe down/up trend that I keep moving my stop profit further up or down or I am taking a longer trade based on the 1hour time frame to Daily. These trades sometimes take a lot longer so I take much less of them.
Try out different strategies of trading if you want to see how you can make upwards of 5-10X more then old paradigm trading check out our New Paradigm page that is just an overview.