Overnight swap and swap-free accounts
Swap rates as an annual percentage and a daily charge
A platform may show the swap as a percentage rather than as a number of pips. The percentage is applied to the full position value, not to the margin you set aside. For one standard lot of AUD/USD at 0.6640, the position value is 100,000 times 0.6640, which equals 66,400 US dollars. If the platform quotes a swap rate of 2.4 per cent a year for holding the position, the daily charge is that annual rate divided by 365.
Two point four per cent of 66,400 US dollars is 1,593.60 US dollars a year. Divide by 365 and the daily charge is 4.37 US dollars, rounded. That is the amount before any conversion to Australian dollars. The platform converts the charge into the currency of your account, so the figure you see in the account is in A$ if the account is funded in Australian dollars.
To compare that figure with a pip-based swap, convert it back to pips. At an exchange rate of about 0.6640, 4.37 US dollars is about 6.58 Australian dollars. One pip on a standard lot is A$10, so 6.58 Australian dollars is about 0.66 pips a day. The two ways of quoting the same charge, a percentage a year and a number of pips a night, describe the same cost. The percentage method grows with the position value, so a larger lot carries a larger daily charge in dollar terms even when the quoted rate is unchanged.
The triple swap on the day the market rolls three days forward
Most platforms apply a swap for each day the position is held past the daily cut-off. The cut-off is usually set by the broker and often falls in the late afternoon or evening in Australian time. When a position is held across a weekend, the platform cannot charge a separate swap on Saturday and Sunday because the market is closed. Instead, it applies a triple swap on one weekday, usually Wednesday, to cover the three days from Wednesday to Friday.
The triple swap is not a penalty. It is the same daily rate multiplied by three. If the daily swap is 0.4 pips a night, the triple swap on that weekday is 1.2 pips. On a standard lot of AUD/USD, where one pip is A$10, that is A$12.00 for that one night. The other four weekdays carry the normal single swap. A position held from Monday to Friday therefore carries five days of swap in total, but the charge is spread across four nights, with one of them tripled.
For a position held for exactly three nights, the total depends on which nights they are. Three ordinary weeknights carry three single swaps. A position held over a weekend may carry a triple swap plus two single swaps, which is five days of swap for three nights of holding. The lesson's earlier example used three single swaps and produced A$12.00. If one of those three nights is the triple-swap night, the total is 0.4 pips times five, which is 2.0 pips, or A$20.00. The number of nights is not the same as the number of swap days.
The cut-off time and the swap-free administration charge in figures
The daily cut-off is a fixed time set by the broker, not by the exchange. It may be at 5pm New York time, which is early morning in Australia, or at another hour. A position opened at 9am and closed at 4pm the same day is closed before the cut-off, so no swap applies. A position opened at 9am and still open at the cut-off carries one day of swap. The exact time varies between brokers and can change, so the platform's contract specifications are the only reliable source for that broker.
On a swap-free account, the swap is removed and an administration charge is applied instead. The charge may be quoted as a fixed amount per lot per night, as a percentage of the position value, or as a wider spread on the entry and exit. Suppose the administration charge is 0.9 pips a night on a standard lot of AUD/USD, where one pip is A$10. That is A$9.00 a night. Over three ordinary nights the total is A$27.00. The standard account at 0.4 pips a night costs A$4.00 a night, or A$12.00 over the same three nights.
The difference is A$27.00 minus A$12.00, which is A$15.00 in favour of the standard account over those three nights. The swap-free account becomes cheaper only when the standard swap is high enough. If the standard swap were 1.0 pips a night, the three-night cost would be A$30.00, and the swap-free charge of A$27.00 would be lower by A$3.00. The comparison must be made with the actual rates for the lot size and the number of nights in question, because the rates are set by the broker and vary between brokers.
One standard lot held overnight: swap against no swap
| Step | Amount | Note |
|---|---|---|
| Position | 1 standard lot of AUD/USD | 100,000 units of the base currency |
| Price used | 0.6640 | the AUD/USD level in this example |
| One pip | A$10 | 100,000 x 0.0001 = 10 units of the quote currency, converted at 0.6640 |
| Swap on a standard account | A$4.00 a night | 0.4 pips x A$10 per pip, a figure that varies between brokers |
| Swap on a swap-free account | A$0.00 a night | the daily swap is not charged |
| Administration charge on the swap-free account | A$9.00 a night | 0.9 pips x A$10 per pip, a flat charge that varies between brokers |
| Difference over one night | A$5.00 more | A$9.00 minus A$4.00 |
The broker may round the swap, quote it as a percentage of the position, apply a wider spread on a swap-free account, or add a separate administration charge. The exact figures vary between brokers and can change with market conditions.
Doing it once, step by step
The reader is about to compare two accounts for a position meant to be held overnight, using the platform's own figures. The steps are done once, in order, before the position is opened.
- 01
Find the daily cut-off time
Open the contract specifications for AUD/USD on the platform and look for the swap cut-off time. Convert that time to your local time zone so you know when the day's swap begins. If the specification does not state it, ask the broker's support desk in writing and keep the reply.
- 02
Read the swap rate for the direction of the trade
The swap for a long position and the swap for a short position are often different. Note both rates, even if you plan one direction. Check whether the rate is quoted in pips, in the account currency per lot, or as an annual percentage.
- 03
Identify the triple-swap day
Find which weekday carries the triple swap on this platform. It is usually Wednesday, but it can differ. Count how many swap days your intended holding period covers, not just the number of nights.
- 04
Multiply the rate by the number of swap days
For a pip-based rate, multiply the pips by the pip value in Australian dollars, then by the number of swap days. For a percentage rate, apply the percentage to the position value, divide by 365, then multiply by the number of swap days. Write the total down.
- 05
Do the same for the swap-free account
Find the administration charge, the spread difference, or both, on the swap-free account. Apply the same lot size and the same number of swap days. If the charge is a wider spread, estimate the extra cost in pips and convert it to Australian dollars.
- 06
Compare the two totals and record the rates
Subtract the smaller total from the larger to see the difference in Australian dollars. Keep the rates you used, because the broker can change them. Recheck the figures before any later position that is meant to be held overnight.
The mistake most people make here
The common mistake is to read swap-free as free. The daily swap is removed, but an administration charge, a wider spread or both usually take its place, and on a position held for a single night that replacement can cost more than the swap it replaced. The second mistake is to treat the swap as a fixed number and never check it again, when the rate is set by the broker and can change. Before opening a position meant to be held overnight, compare the swap on the standard account with the total charge on the swap-free account for the same lot size and the same number of nights. If the position is closed before the daily cut-off, neither charge applies.Check yourself
A standard lot of AUD/USD is held for three nights. The swap is 0.4 pips a night and one pip is A$10. What is the total swap?
0.4 pips x A$10 = A$4.00 a night. Three nights: A$4.00 x 3 = A$12.00.
The same lot is moved to a swap-free account with an administration charge of 0.9 pips a night. What is the total over the same three nights, and which account is cheaper?
0.9 pips x A$10 = A$9.00 a night. Three nights: A$9.00 x 3 = A$27.00. The standard account is cheaper by A$27.00 minus A$12.00 = A$15.00 over the three nights.
The position is closed before the daily cut-off. What is the swap for that day?
Nothing. The swap applies to positions held past the cut-off, so a position closed before it carries no swap for that day.
Questions that come up next
What does swap-free actually mean on a platform?
Swap-free means the daily swap charge or credit is not applied to the position. The platform still earns from the account in another way. That other way is usually an administration charge, a wider spread, or both. The word free describes only the swap line, not the total cost of holding the position.
How do I work out the swap in Australian dollars from a pip figure?
Take the swap in pips and multiply it by the value of one pip for the lot size you are using. On one standard lot of AUD/USD, one pip is A$10. A swap of 0.4 pips a night is 0.4 times A$10, which equals A$4.00 a night. Multiply by the number of nights the position stays open past the cut-off.
Why does my platform show a triple swap on one weekday?
The market is closed at the weekend, so the platform cannot charge a separate swap on Saturday and Sunday. It applies three days of swap on one weekday, usually Wednesday, to cover the days the position is held across the weekend. The triple swap is the daily rate multiplied by three, not a separate penalty.
Can the swap on my account change after I open it?
Yes. The broker sets the swap rate and can change it. The rate can also differ between account types and between brokers. A figure you checked last month may not be the figure applied tonight. Check the current rate on the platform before holding a position overnight.
Does the swap apply if I close the position before the daily cut-off?
No. The swap applies only to positions held past the daily cut-off. If you close the position before that time, no swap is charged for that day. The cut-off is set by the broker and often falls in the late afternoon or evening in Australian time.
How do I compare a standard account with a swap-free account in figures?
Use the same lot size and the same number of nights for both. Work out the swap on the standard account in pips, then multiply by the pip value. Work out the administration charge or the wider spread on the swap-free account in the same way. The lower total over the same period is the cheaper account for that trade.
In Australia
- Regulator
- ASIC regulates forex and CFD providers that offer accounts to Australian residents.
- Account currency
- An account can be funded in Australian dollars, so money figures are written in A$.
- Funding methods
- PayID, BPAY and cards are common ways to move money into a trading account.
- Instrument in examples
- AUD/USD, around 0.6640, is used throughout this lesson.
- Swap-free accounts
- The charges on a swap-free account vary between brokers, so the figures in this lesson are examples rather than a standard rate.
The words used on this page
- swap
- The daily charge or credit a platform applies when a leveraged position is held past the daily cut-off. It is set by the broker and can change. It is quoted either as a number of pips or as an annual percentage.
- pip
- A small unit used to measure a price move on a currency pair. On one standard lot of AUD/USD, one pip is worth A$10. Swap figures are often quoted in pips so they can be compared with the pip value of the lot.
- standard lot
- A fixed position size used in the examples on this page. On AUD/USD, one standard lot makes one pip worth A$10. A larger or smaller lot changes the pip value and so changes the swap in dollar terms.
- cut-off
- The time each day when the platform decides whether a position is held overnight. A position still open at the cut-off carries a swap for that day. A position closed before it does not.
- administration charge
- A separate fee some platforms apply on a swap-free account in place of the daily swap. It is often quoted in pips a night. It can cost more than the swap it replaced on a position held for a short time.
- spread
- The gap between the price at which you can buy and the price at which you can sell. A platform may widen the spread on a swap-free account instead of charging a swap. A wider spread raises the cost of entering and leaving the position.
What to take away
- Swap is the daily charge or credit for holding a leveraged position past the cut-off, and it is set by the broker.
- Swap-free removes the swap line but usually adds an administration charge, a wider spread, or both.
- Compare the two accounts over the same lot size and the same number of nights before holding a position overnight.
- A triple swap on one weekday covers the weekend days when the market is closed, and it is the daily rate multiplied by three.