Today, our website has a variety of words for beginner traders to study. Most traders are probably familiar with spreads. In trading and Forex trading, it is common knowledge that each order must pay the spread set by the broker. However, most traders are still unfamiliar with swap.
Swap is a kind of overnight interest rate that can be positive or negative. If the swap is positive, the trader will earn interest. However, if the swap is negative, the trader will be required to pay interest. The swap is charged only if the trader holds the position overnight. Significantly, On Wednesday night, traders should avoid holding sell orders. This is because the weekend and public holiday swap will also be accounted for.
- If a buy order is placed overnight, the trader can use the interest to generate a profit.
- If the swap is negative while the position is held overnight, it will be charged.
- Even if the trade is positive, we will receive less. If it is negative, however, we will pay a large swap.
- For some brokers, swap calculations are not clear. Swap Calculation Formula
Swap = 1 pip value x swap x Number of nights) /10
When opening a 1 lot EUR/USD order on a EUR account for 1 night, the calculation is as follows:
1 Lot = 100,000
1 Pip = $10
Swap = 0.54
From the formula for calculating the swap, substituting the values will be as follows:
Swap = (10 * 0.54 * 1) /10
Therefore, the swap is 0.54.
Many traders may be concerned about accidentally losing a large amount of swap or may be unfamiliar with swap calculations. However, traders may now simply relax because each broker already has a computing tool to facilitate trading. In addition, some MT4, MT5 users can view swap in the following steps:
1. Entering the MT4, and MT5, then select “View” >> “Market Watch”.
2. Right click on the currency pair you want to view >> right click and select “Specification”.
3. Finally, swap will be shown. Here, you will find Swap Long and Swap Short. Both of them are measured in pips.
Swap is the fee paid to a broker for overnight position holding. With forex trading platforms, swap is automatically calculated. Consequently, understanding swaps will improve your trading strategy.
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