Positive swap
Family IV · Costs
Not to be confused with swap fee, swap, forex swap.
Positive swap is the credit side of the overnight interest adjustment applied to positions held past the daily rollover cut-off. It occurs when the interest rate differential between the two currencies in a pair favours the direction of the open trade. The amount is calculated from the notional position size, the applicable rate differential, and the broker's markup or commission.[1]
How a positive swap arises
In a currency pair, each leg carries an interest rate set by its central bank. A long position buys the base currency and sells the quote currency; a short position does the reverse. When the rate on the currency bought exceeds the rate on the currency sold, the net interest differential is positive and the broker credits the account. This credit is the positive swap.
The broker's own markup, often embedded in the quoted swap points, reduces the credit. Some brokers apply a commission or a separate financing charge, so the final amount varies by broker and account type.
Worked example
Variability and conventions
Swap rates are not universal. They depend on the broker's liquidity providers, the account's leverage and margin terms, and the day-count convention used (commonly 360 or 365 days). Many brokers apply a triple swap on a specific weekday to account for the weekend settlement gap, which can turn a small positive swap into a larger credit or, in some cases, a debit. Regulations in some jurisdictions prohibit or restrict the payment of swap credits to retail clients, so the availability of a positive swap varies by country and regulator.
Often confused with
- swap fee
- A swap fee is a charge levied for holding a position overnight, whereas a positive swap is a credit received; the sign of the amount on the account statement is the visible difference.
- swap
- Swap is the general term for the overnight interest adjustment, which can be positive or negative, while positive swap refers only to the credit case; the direction of the cash flow tells them apart.
- forex swap
- A forex swap is the combined interest adjustment on a currency pair, usually expressed as two swap points, whereas positive swap is the resulting net credit; the presence of a positive net figure distinguishes it.
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.