How to calculate swap rates

Swap rates are issued by big financial institutions and are passed on to brokers before being applied to their trading services.

What is a swap rate?

A swap rate (also known as rollover rate) is always applied when trading positions are kept open overnight. These rates are issued by  big financial institutions (banks) and passed on to brokers before being applied to trading services. All trades left open after midnight will have the swap rate applied to them. Typically different brokers and platforms have slightly different rates and could apply the swap rates at a different time.

Calculating swap rates:

Swap rates are calculated automatically by the trading platform, however, traders can calculate swap rates by themselves using the following formula:

Current long/short swap rate x number of lots x number of nights = swap debit/credit in quote currency

The first number that is required is the swap rate itself. It can be either a positive or negative number that is based on interest rates. Swap rates are also different for long and short positions. So, if you placed a long position (buy) you will make the calculations with the swap long rate and if you placed a short position (sell) you will use the swap short rate.

Swap rates vary from asset to asset and are measured on a standard size of 1 standard lot (100,000 base units for Forex pairs). In order to make the necessary calculations traders need to check the updated rates for each instrument in their trading platform. If you use the most popular platform – MetaTrader 4 or MetaTrader 5, you need to go to the “Market Watch’’ section and right-click on the desired asset. From the drop-down menu select ‘Symbols’. A popup window will open with all available instruments and their specifications. If you are using Meta Trader 4 choose the one you want to check and click the ‘Properties’ button – a new window will appear that shows the long and short swap rates, as well as the market closing times.

So, let’s suppose you are trading the AUD/JPY Forex pair. In your trading platform, you can see that the swap long is 3.2 points and swap short is -9.2 points. You opened a long position, so you will do the calculations with 3.2.

Next, we have number of lots. When you place an order you can choose a number of lots (volume) of the trade. You can select a number between the minimum and maximum volume available at your trading platform. In our case, this number ranges from 0.01 and 10,000 (to check how much is this in monetary value, you have to multiply this number with the contract size, which is 100000 for AUD/JPY). You can find all that information in the ‘Symbols’ or ‘Specification’ menu as well.

For our next example, let’s say you opened a trade with a half lot, which is 0.5.
After this, you have to account for the number of nights, in which the swap rates were applied. Don’t forget that on Wednesday night the charges are for 3 days instead of 1. This is required because during weekends the market is closed.

Assuming your trade was opened on Monday and closed on Thursday. This makes 4 nights, not just 2.
Following the formula above we have:

(3.2 x 0.5) x 4 = ¥ 6.4

Pay attention to the fact that the resulting number is in the currency of the secondary / quote currency in the pair.

However, swap rates are charged in the currency of your account. If your account is in another currency, for example, USD, you have to multiply by the USD exchange rate:

0.00884 x 6.4 = $0,057

This is the monetary value of the swap rate on your trade for those 4 nights. The number is positive and despite being small still works in your favor.

Share

HEAD OFFICE

Level 6, 360 Collins Street
Melbourne, VIC
3000 Australia

Risk Warning: Margin trading involves a high level of risk, and may not be suitable for all investors. You should carefully consider your objectives, financial situation, needs and level of experience before entering into any margined transactions with EightCap, and seek independent advice if necessary. Forex and CFDs are highly leveraged products which mean both gains and losses are magnified. You should only trade in these products if you fully understand the risks involved and can afford losses without adversely affecting your lifestyle (including the risk of losing substantially more than your initial investment). A Product Disclosure Statement (PDS) and a Financial Services Guide (FSG) for our products are available to download from our Legal Documentation page. You must assess and consider them carefully before making any decision about using our products or services.

EightCap is a registered business name of EightCap Pty Ltd (ABN 73 139 495 944). We are regulated by the Australian Securities & Investments Commission (ASIC) - our AFSL number is 391441. This licence authorises us to provide financial services to people in Australia.

The information on this website is of a general nature only and is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. EightCap is not a financial adviser, and does not issue advice, recommendations, or opinion in relation to acquiring, holding or disposing of a margined transaction. We provide general advice only and accordingly you should consider how appropriate the advice (if any) is to your objectives, financial situation and needs before acting on the advice.