Overnight swap and swap-free accounts
What you learn in 3 minutesThis lesson explains what an overnight swap is, using a chart of EUR/USD around 1.0850 so the cost is tied to a picture rather than a paragraph. If a position is held past the daily cut-off, the broker adds or subtracts a small amount based on the two interest rates behind the pair. On one standard lot that amount can be a few hundred pesos a night, and a swap-free account removes it but usually replaces it with a different charge.
One standard lot of EUR/USD held for one night
| Step | Amount | Note |
|---|---|---|
| Position | 1 standard lot EUR/USD | 100,000 units of the base currency |
| Price used | 1.0850 | the chart level in the diagram |
| One pip | 10 units of the quote currency | 100,000 x 0.0001 |
| Swap rate quoted by the broker | -0.08 pip per night | this figure varies between brokers and is only an example |
| Swap in quote currency | -0.80 | 0.08 x 10 |
| Swap in pesos | -₱45.60 | 0.80 x 57.00, the rate used here |
| Swap-free account charge | -₱68.40 | 0.80 x 1.5 x 57.00, an administration fee in place of swap |
Brokers may round the swap, apply a wider spread on swap-free accounts, add a separate administration fee, or quote the charge in the account currency at their own conversion rate. The peso figures here use one rate and will differ from the rate applied to a real account.
The mistake people make here
The common mistake is to treat swap as a rounding error and hold a leveraged position for weeks without checking the daily charge. A cost of ₱45.60 a night becomes ₱1,368.00 over thirty nights on a single lot, which can quietly erase a small gain. The fix is to open the contract specification page before the trade, find the swap or administration fee, and write the nightly figure next to the position size. If the account is swap-free, check what replaces the swap, because the replacement is usually a fee or a wider spread rather than nothing.Check yourself
One standard lot of EUR/USD is held overnight with a swap of -0.12 pip per night. Using 10 units per pip and a rate of 57.00 pesos per unit, what is the cost in pesos?
0.12 x 10 = 1.20 units of the quote currency. 1.20 x 57.00 = ₱68.40.
A swap-free account charges an administration fee of ₱68.40 a night instead of swap. Over five nights, how much more is paid than a swap of ₱45.60 a night?
₱68.40 - ₱45.60 = ₱22.80 a night. ₱22.80 x 5 = ₱114.00 more.
In the Philippines
- Regulator
- SEC Philippines
- Money
- peso, written ₱ (PHP)
- Funding methods
- GCash and bank transfer
- Example instrument
- EUR/USD, around 1.0850
- Pip value on one standard lot
- 10 units of the quote currency, converted at the current rate