Currency swap (swap)
Traders who leave open positions overnight are faced with a small deduction in their accounts. This amount is usually only a few pips and is deducted at 21:00 GMT. As a consequence, your open position may be shifted up or down slightly on the chart, depending on whether they are positive or negative. Together, these points constitute currency swap (from the English swap - exchange).
How is a currency swap formed?
Marketplace works 24 hours a day, 5 days a week. But in spite of this, the world legislation requires that at the end of the day, which is at 21:00 GMT, all open positions be closed and real money settlements on the results of these transactions be made. At this time there is movement of funds in the accounts of all clients in all world banks. However, cashing of funds is the least interesting for traders, because the main benefit for them is currency turnover, not cash. In order to avoid cash payments on their accounts, brokers close all traders' open positions exactly at 21:00 GMT and open new ones with the same trading volumes of money. This very operation is called currency swap.
How is the currency swap calculated?
When exchanging currency, an important indicator is the interest differential - the difference between the discount rates of the central banks of the countries whose national currencies you work with. It is this difference that is laid down in the currency swap. If you bought a currency for which the discount rate is higher, you will get a positive swap difference, if you sold it, you will get a negative swap difference.
The formula for calculating the swap for a positive interest rate differential is as follows:
Currency swap = Transaction amount * (Interest rate differential - Broker's commission) / 100) * Current price of currency pair / Number of days in a year
When the difference is negative:
Currency swap = Transaction amount * (Interest rate differential + Broker's commission) / 100) * Current price of currency pair / Number of days in a year
As you have already noticed, the value of the swap already includes the broker's commission for transferring the position to the next day.
As we have already noticed in the swap calculation there is a broker's commission, and a very good commission. In order to discourage small investors from holding positions for a long time, because large investors do not work with such companies.