Forex Swap Rates — How Rollover Interest Affects Your Trades
Every forex position held past 5:00 PM EST is subject to a swap rate — an interest credit or debit based on the interest rate difference between the two currencies in the pair. Understanding swap rates can add a consistent return to your strategy or silently eat away at your profits.
When you hold a forex position overnight, your broker applies a swap rate (also called rollover rate or overnight interest). This is not a fee — it is the interest rate differential between the two central banks whose currencies you are trading. If you are long a high-yielding currency against a low-yielding one, you earn interest. If the opposite, you pay.
How Swap Rates Work
Every currency has an underlying interest rate set by its central bank. When you buy a currency pair, you are simultaneously borrowing the quote currency (paying its interest rate) and buying the base currency (earning its interest rate). The net difference, adjusted for broker markup, is your swap rate.
Example: You buy AUD/JPY. The RBA cash rate is 4.35% and the BoJ rate is 0.50%. You earn approximately 3.85% annualized on your position size (minus broker markup). A standard lot (100,000 units) might earn roughly $10 per day in positive carry.
Positive Carry vs Negative Carry
Positive carry occurs when you earn more interest on the currency you bought than you pay on the currency you sold. This is the foundation of the carry trade strategy, where traders seek to profit from both price appreciation and daily interest.
Negative carry means you are paying more interest than you earn. This happens when you are short a high-yielding currency or long a low-yielding one. For short-term day traders, negative carry is negligible. For swing traders holding positions for weeks, it can become a significant cost.
When Swap Rates Are Applied
Swap rates are applied at 5:00 PM EST (New York close) each trading day. Positions opened before 5:00 PM and still open at 5:00 PM receive the swap. On Wednesdays, swap rates are typically tripled to account for the weekend settlement, since positions held through Wednesday would normally settle on Friday but the weekend pushes settlement to Monday.
Strategy tip: If you hold positions with negative carry, consider closing before Wednesday's rollover to avoid the triple swap charge. If using a carry trade strategy, Wednesday is when you earn three days of interest.
How to Find Swap Rates
Most brokers publish swap rates in their trading platform or on their website. Look for "swap long" and "swap short" values for each currency pair. These are usually quoted in pips or account currency per standard lot. MetaTrader platforms display swap rates in the Market Watch window or in the contract specification details.
Key Takeaways
- Swap rates are based on central bank interest rate differentials
- High-yielding pairs: AUD/JPY, NZD/JPY, ZAR/JPY often offer positive carry
- Low-yielding pairs: EUR/CHF, USD/JPY may have negative carry
- Wednesday triple swap makes it the most important day for carry traders
- Check your broker's swap rates before opening long-term positions
Further reading: Forex Leverage Explained, Carry Trade Strategy, Forex Margin Calculator