Swap vs Swop: Why do overnight fees eat into traders' profits?

Swap vs. Swop: Understanding the Difference

Before diving into the details of Swap, it’s important to clarify terminology that many traders often confuse.

Swap (Swap) is the fee for holding a position overnight, calculated based on the interest rate differential.

Swop (Swop) is not an official financial term used in the Forex/CFD markets. It is a misspelling or confusion with other terms. Some languages use “Swop” as an alternative spelling for “Swap,” but in trading circles, “Swap” is the standard term.

Long-term traders must understand this distinction clearly, as Swap costs gradually eat into your profits every day.

Why Does Swap Exist: The Mechanism of Trader Borrowing

When you open a Forex order such as EUR/USD, you are “borrowing” one currency to “buy” another.

Examples:

• Buy EUR/USD: Borrow USD (pay interest) and buy EUR (earn interest)
• Sell EUR/USD: Borrow EUR (pay interest) and hold USD (earn interest)

Each country’s central bank sets its own policy interest rate, for example:

• US Dollar (USD): Set by the FED
• Euro (EUR): Set by the ECB
• Japanese Yen (JPY): Set by the Bank of Japan

The Swap is the net interest differential between the two currencies, plus the broker’s handling fee.

Example Calculation of Swap

Assuming EUR = 4.0% per year, USD = 5.0% per year

• Buy EUR/USD: Earn EUR (4.0%) - Pay USD (5.0%) = -1.0% per year → Negative Swap
• Sell EUR/USD: Earn USD (5.0%) - Pay EUR (4.0%) = +1.0% per year → Positive Swap

However, brokers add their handling fee, so even if the Swap “should” be positive, the broker might reduce it, possibly turning it negative.

Types of Swap Traders Need to Know

Positive and Negative Swap

Negative Swap (mostly) = You pay out daily Positive Swap (or) = You receive money daily

Swap Long and Swap Short

• Swap Long: Swap fee for Buy orders
• Swap Short: Swap fee for Sell orders

These are not equal because brokers have their own spread margin.

( 3-Day Swap: The Weakness of Traders

This is a common pitfall for beginners.

The Forex market closes on Saturday-Sunday, but financial interest continues every day, even on holidays.

Brokers aggregate the Swap for Saturday-Sunday into the trading days, usually on Wednesday night )for holding from Wednesday to Thursday### due to the T+2 settlement cycle of the Forex market.

Result: You are charged Swap 3 times that night, causing costs to spike suddenly.

How to Check Swap Rates Before Trading

( In MT4/MT5

1. Market Watch → Right-click on the asset
2. Select Specification
3. Look for “Swap Long” and “Swap Short”
4. The numbers are in Points )must be converted###

( In Modern Platforms Newer brokers display Swap as % per night, which is easier, e.g., -0.008% per night ).

Calculating Swap Costs Accurately

Method 1: From Points

Swap = (Swap Rate in Points) × ###Value of 1 Point(

Example: Buying 1 Lot EUR/USD:

• Swap Long = -8.5 Points
• 1 Pip )10 Points( = )USD( → 1 Point = )- Swap per night = -8.5 × $10 = -$8.50 USD
• For 3-Day Swap = -$8.50 × 3 = -$25.50 USD

$1 Method 2: From Percentage $1 %###

Swap = (Total position value) × (Swap rate %)

Total position value = Lot × Contract Size × Market Price

Example: Buy 1 Lot EUR/USD at 1.0900:

• Value = 1 × 100,000 × 1.0900 = 109,000 USD
• Swap Long = -0.008% per night
• Swap per night = 109,000 × (-0.008/100) = -$8.72 USD
• For 3-Day Swap = -$8.72 × 3 = -$26.16 USD

Key Point: Swap is calculated based on the full value of the position, not the Margin you put up.

If leverage is 1:100, you only put up 1,090 USD Margin but pay Swap of 8.72 USD per night, which is 0.8% of your Margin daily—very high!

Risks: Swap Eating Into Profits

( Main Problems

1. Profit Erosion: Profit of 30 USD disappears because of Swap -26 USD
2. Sideways Market = Slow Losses: If the market is sideways and Swap is negative, you lose money daily
3. High Leverage Risk: Low Margin but high Swap → risk of Margin Call

Opportunities: Carry Trade and Swap-Free Accounts

) Carry Trade ###profits from interest differentials###

Borrow in a “low” interest currency (like JPY) to buy a “high” interest currency (like AUD):

• Example: Buy AUD/JPY to earn positive Swap daily
• Risk: AUD/JPY exchange rate drops sharply → losses exceeding accumulated Swap

( Swap-Free Accounts )Islamic Accounts###

Many brokers offer accounts with no Swap charges, suitable for:

• Muslim traders
• Swing/Position traders holding for weeks or months

Trade-off: Spread might be wider or fixed management fees apply.

Summary: Plan Your Trading Carefully

Swap is not just a fee—it’s an implicit cost that directly impacts your ROI.

For:

• Scalpers/Day Traders: No need to worry (if closing within hours)
• Swing Traders: Must calculate and possibly choose only the positive Swap side
• Position Traders: Consider Swap-Free accounts or Carry Trade strategies

Choosing a transparent broker regarding Swap information helps you plan accurately, avoiding hidden costs that distort your expected results.

Note: Investing involves risks and may not be suitable for everyone. Study the information carefully before making decisions.