Negative swap
Family IV · Costs
Not to be confused with swap fee, swap, forex swap.
Negative swap refers to the net interest payment a trader incurs for keeping a position open past the daily rollover time. It arises when the financing cost of the borrowed currency exceeds the interest earned on the long currency, or when the broker's financing charge outweighs any credit. The amount is applied directly to the account balance, typically as a debit.[1]
How a negative swap arises
In leveraged trading, a position is effectively financed by borrowing one currency to buy another. Each currency carries an overnight interest rate set by its central bank. The swap is the net of these two rates, adjusted by the broker's markup. A negative swap occurs when the rate on the borrowed currency is higher than the rate on the bought currency, or when the broker's financing charge exceeds the interest differential. For example, if a trader is long a currency with a 0.5% interest rate and short a currency with a 2.0% rate, the net interest is negative. The broker then adds its own fee, widening the debit. The exact calculation and timing vary by broker and instrument.
Worked example
Assume a trader holds 1 standard lot (100,000 units) of EUR/USD overnight. The broker's swap rates are -0.75 points for long positions and +0.45 points for short positions, per standard lot. A negative swap applies to the long position.
The negative swap reduces the account balance by 0.75 USD for that night. If the position is held for multiple days, the debit accumulates, and some brokers apply triple swap on a specific weekday to account for the weekend.
Variation and practical notes
Swap rates are not universal. They depend on the broker's financing sources, the instrument traded, and prevailing interbank rates. Some brokers publish a swap table, while others calculate it in real time. The rollover time also varies, often aligning with the close of the New York session. Traders should check the contract specifications for the exact swap schedule and any triple-swap days. Negative swaps are a cost of carry and can erode profits in long-term strategies.
Often confused with
- swap fee
- A swap fee is a generic term for any charge related to rolling over a position, while a negative swap is specifically the debit that results when the net interest adjustment is negative; the visible sign is whether the account balance decreases or increases at rollover.
- swap
- A swap is the broader category of overnight interest adjustments that can be positive or negative, whereas a negative swap is only the subset that results in a debit; the visible sign is the minus sign in the swap column of the trading platform.
- forex swap
- A forex swap refers to the interest adjustment in currency pairs, which can be positive or negative, while a negative swap is the specific case of a debit; the visible sign is the negative value shown in the swap field for the open position.
See also
References
- ↑ Policy rate publications of the relevant central banks. Overnight financing follows the interest-rate differential between the two currencies, plus the broker's own markup, so the figure is not fixed.