Forex Rollover (SWAP) Rate

Forex Trading Rollover Rates (Forex SWAP)

The Rollover Rate or Forex SWAP rate is the net interest return on any position held overnight and can be positive or negative for the trader’s account balanceDifferent currencies pay different interest rates and the Rollover Rate is a method of balancing these differences. The Rollover Rate or Forex SWAP rate is the net interest return on any position held overnight and can be positive or negative for the trader’s account balance.

 

What is the Forex Rollover Rate or Forex SWAP?

A Forex SWAP or Rollover Rate is a formula for converting annual currency interest rates into daily cash returns. This rate applies to all Forex trading positions that are held overnight. The Rollover Rate is based on the interest rate differential between the two currencies involved in a Forex pair and can be either positive or negative.

How does the Rollover work for Weekends?

As the Foreign Exchange market is officially closed during weekends, there is no rollover rate on Saturday and Sunday. To balance that, most Forex brokers charge a 3-day rollover rate on Wednesdays. In simple words, the rollover rate is tripled (X3) on Wednesdays.

Normal SWAPs Rate: Monday, Tuesday, Thursday, Friday

Triple SWAPs Rate: Wednesday

No SWAPs Rate: Saturday, Sunday

How does the Rollover work for Holidays?

There is no rollover rate on holidays. To account for that, Forex brokers charge an extra rollover two (2) business days before the holiday. If that day is Wednesday, then that means four (4) days worth of interest on a single day.

Key Points:

  • The Rollover Rate is paid at midnight according to each broker’s time server
  • At Wednesday the Rollover Rate is tripled (X3) in order to cover the weekend
  • During Holidays there is no Rollover Rate (that is covered two days before the holiday)
  • The Rollover Rate can be positive or negative, according to the interest differential between the two currencies involved in any Forex pair
  • A positive Rollover Rate is gain for the trader and a negative Rollover Rate is a cost
  • Depending on the Forex Broker, the Rollover Rate of the same currency pairs may differ significantly
  • Some currency pairs may show negative Rollover Rates on both sides {both ‘long’ and ‘short’}
  • There are SWAP-free accounts, that meet the needs of Islamic traders

Calculating the Daily Rollover Rate

Some simple steps for calculating the Rollover Rate, common for every Forex pair:

The Rollover Rate matters to all Forex traders who maintain their positions overnight. (1) We start by subtracting the annual interest rate (%) of the base currency {R(base)} from the annual interest rate (%) of the quote currency {R(quote)}.

(2) The amount produced must be divided by 365 times the base exchange rate in order to calculate the daily Rollover Rate {365*ER}

For example, if the base currency offers a 5% annual interest rate (%) and the quote currency offers a 10% annual interest rate (%), we get a 5% annual rate. Then by dividing 5% by 365 days times the exchange rate we get the daily Rollover Rate.

■ The Formula for calculating the Forex Rollover Rate is:

{R(base) – R(quote)} / {365*ER}

where:

R(base) ​= The annual interest rate of the base currency

R(quote)​ = The annual interest rate of the quote currency

365 = The days of the year

ER = The exchange rate​ (i.e. 1.20 for the EUR/USD)

Why the Rollover Rate really matters to traders?

The Rollover Rate matters to all Forex traders who maintain their positions overnight. For example, swing traders, position traders, and long-term traders.

The Rollover Rate paid by any trader depends on three variables:

·The Forex pair

·The interest rate (%) for each currency involved

·The position size

Example:

Trader-A wants to open a long position worth 10 standard lot on EUR/AUD (Euro/Australian Dollar). The Euro traditionally offer a lower interest rate than the Australian Dollar. That means this trader borrows money from a high-yield currency (AUD) to buy a low-yield currency (EUR). In other words, this trader will have to pay a rollover fee, if he keeps his position after midnight.

On the other hand, Trader-B is going short 10 lots on EUR/AUD, borrowing money from a low-yield currency to buy a high-yield currency. Therefore, the second trader will earn a rollover rate, if he keeps his position after midnight.

Let’s suppose the EURAUD rollover rate is +$2 for shorts and -$10 for longs:

□ Trader-A: pays (10 lots x -$10/lot ) = -$100

□ Trader-A: earns (10 lots x $2/lot ) = +$20

Why the negative Rollover Rates are significantly higher than the positive Rollover Rates?

In theory, if two currencies offer the same interest rate, their positive and negative rollover rates should be equal. In reality, the negative rollover rate is usually significantly greater than the positive rollover. This is happening as Forex brokers make money out of overnight SWAP rates. Note also that ECN/STP brokers offer much better swap rates than dealing-desks (DD).

When the Rollover Rate Becomes Significant?

But let’s see when the Rollover Rate becomes really crucial for traders:

  • When the interest rate differential between two currencies is significant (more than 0.50%)
  • When a trading position is held for long periods
  • When a trading position is held overnight at Wednesday (the rate is tripled on Wednesday)
  • When traders use trading leverage
  • When a Forex broker is not very competitive (ECN brokers offer traditionally better Rollover Rates than Dealing-Desks)

What is a Carry Trade Strategy?

Carry Trade or Carry Trading is a popular Forex trade strategy that involves selling a low-yield currency and buying a high-yield currency. The concept is to make money out of the interest-rate differential. Carry Trade can also mean borrowing in a low-interest rate currency, converting it to a high-interest-rate currency, and buying the highest-rated bonds.

Carry traders will usually go long on currencies such as the New Zeeland Dollard and the Canadian Dollar, and go short on currencies such as the Japanese yen and the Swiss Franc. The most popular currency pairs for carry trading are:

■ AUD/JPY, NZD/JPY, EUR/JPY, USD/TRY, and GBP/CHF

How Rollover Rates are Important to Automated Strategy Backtesting?

As the SWAP rates may alter significantly the profit or loss potential of a trade that is held overnight, it is important to consider and include the SWAP rates when backtesting an automated trade strategy.

-The MT4 strategy tester does not include values for SWAP rates, but fortunately, there are tools on MT4 that may help traders to include the effect of swap rates

-That is particularly important for trade strategies that hold positions for several days

Compare SWAP Rates 

Table: Comparing ECN/STP Forex Brokers and their SWAP values (Long vs Short)

FOREX SWAP RATES

FOREX SWAP RATES (*)

COMPANY

ACCOUNTS

 SWAP RATES:

  • EURUSD Long (↑): -$0.90 | Short (↓): +$0.49 
  • GBPUSD Long (↑): -$0.71 | Short (↓): +$0.09 
  • USDJPY Long  (↑): +$0.36 | Short (↓): -$0.80 
  • USDCAD Long (↑): -$0.25 | Short (↓): -$0.35

Best Spread EURUSD:

  • 0.1 Pip plus $7.0 per round-lot

 Number of currency pairs: 55+

■ Founded: 2007
 
■ Regulation:
  • ASIC (335692)

■ Min.Account:

$200 for MT4 and MT5

$1,000 for cTrader

■ Leverage: 1/500
  • Tight spreads and wide Forex asset index
  • Fast execution and low slippage
  • PAMM Account, Free VPS

 

 SWAP RATES:

  • EURUSD Long (↑): -$0.96 | Short (↓): +$0.36 
  • GBPUSD Long (↑): -$0.75 | Short (↓): -$0.08
  • USDJPY Long  (↑): +$0.23 | Short (↓): -$0.82 
  • USDCAD Long (↑): -$0.37 | Short (↓): -$0.38

 Best Spread EURUSD:

  • 1.5 Pip spread (No commissions)

■ Number of currency pairs: 70+

 Founded: 2005
 Regulation:

  • FCA UK (License 579202)
  • FSP New Zeeland (License 192685)

 Min.Account: $10

 Leverage: 1/500

  • A wide variety of Forex pairs (70+)
  • PAMM Account, Free VPS

 

 SWAP RATES:

  • EURUSD Long (↑): -$1.27 | Short (↓): +$0.34 
  • GBPUSD Long (↑): -$0.98 | Short (↓): +$0.12 
  • USDJPY Long  (↑): +$0.30 | Short (↓): -$1.22
  • USDCAD Long (↑): -$0.16 | Short (↓): -$0.49

Best Spread EURUSD:

  • 0.1 Pip plus $4.0 per lot

Number of currency pairs: 50+

■ Founded: 2011
■ Regulation:
  • CySEC (185/12)
  • FCA UK (777911)

■ Min.Account:

$5 and $500 for ECN account

■ Leverage: 1/30
  • Tight spreads and a wide Forex asset index
  • PAMM Account

 
(*) PLEASE NOTE THAT THE ABOVE SWAP VALUES MAY CHANGE ANY TIME WITHOUT NOTICE. VISIT EACH BROKER'S WEBSITE TO CHECK FOR UPDATES
 
 
  

 Forex Rollover (SWAP) Rates

ForexAutomatic.com

 

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