Forex Trading Rollover Rates (Forex SWAP)
Different currencies have varying interest rates, and the rollover rate is a method used to balance these differences. The rollover rate, also known as the Forex swap rate, is the net interest earned or paid on any position held overnight. It can either be positive or negative, affecting the trader’s account balance accordingly.
What is the Forex Rollover Rate?
A Forex swap, or rollover rate, is a formula used to convert annual currency interest rates into daily cash returns. This rate applies to all Forex trading positions held overnight. The rollover rate is based on the interest rate differential between the two currencies in a Forex pair and can be either positive or negative.
How Does the Rollover Work for Weekends?
Since the foreign exchange market is officially closed on weekends, there is no rollover rate applied on Saturdays and Sundays. To compensate for this, most Forex brokers apply a three-day rollover rate on Wednesdays. In simple terms, the rollover rate is tripled (x3) on Wednesdays.
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Normal Swap Rate: Monday, Tuesday, Thursday, Friday
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Triple Swap Rate: Wednesday
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No Swap Rate: Saturday, Sunday
How Does the Rollover Work for Holidays?
There is no rollover rate applied on holidays. To account for this, Forex brokers charge an extra rollover two (2) business days before the holiday. If that day falls on a Wednesday, it results in four (4) days’ worth of interest being charged or credited on a single day.
Key Points:
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The rollover rate is applied at midnight, based on each broker’s server time.
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On Wednesdays, the rollover rate is tripled (x3) to cover the weekend.
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There is no rollover rate on holidays; it is charged two business days in advance.
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The rollover rate can be positive or negative, depending on the interest rate differential between the two currencies in a Forex pair.
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A positive rollover rate is a gain for the trader, while a negative rate is a cost.
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Rollover rates may vary significantly between Forex brokers, even for the same currency pairs.
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Some currency pairs may have negative rollover rates on both long and short positions.
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Swap-free accounts are available to accommodate Islamic traders.
Calculating the Daily Rollover Rate
Some Simple Steps for Calculating the Rollover Rate (Common for Every Forex Pair):
The rollover rate is important for all Forex traders who hold positions overnight.
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Start by subtracting the annual interest rate (%) of the base currency {R(base)} from the annual interest rate (%) of the quote currency {R(quote)}:
Rollover Differential = R(quote) - R(base)
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Divide the result by 365 times the base exchange rate to calculate the daily rollover rate:
Daily Rollover Rate = (Rollover Differential) / (365 × ER)
Example:
If the base currency offers a 5% annual interest rate and the quote currency offers a 10% annual interest rate, the differential is 5%. Dividing that 5% by (365 × exchange rate) gives the daily rollover rate.
Why Does the Rollover Rate Really Matter to Traders?
The rollover rate is important for all Forex traders who hold positions overnight—especially swing traders, position traders, and long-term traders.
The rollover rate a trader pays or earns depends on three variables:
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The Forex pair
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The interest rate (%) of each currency involved
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The position size
Example:
Trader A opens a long position worth 10 standard lots on EUR/AUD (Euro/Australian Dollar). The Euro typically has a lower interest rate than the Australian Dollar. This means the trader is borrowing from a high-yield currency (AUD) to buy a low-yield currency (EUR). In this case, Trader A will pay a rollover fee if the position is held past midnight.
On the other hand, Trader B goes short 10 lots on EUR/AUD, effectively borrowing from a low-yield currency to buy a high-yield currency. Therefore, Trader B will earn a rollover credit if the position is held past midnight.
Assuming the EUR/AUD rollover rate is +$2 for shorts and -$10 for longs:
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Trader A pays: (10 lots × -$10/lot) = -$100
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Trader B earns: (10 lots × $2/lot) = +$20
Why Are Negative Rollover Rates Usually Higher Than Positive Ones?
In theory, if two currencies have the same interest rate differential, the positive and negative rollover rates should be equal. In practice, however, negative rollover rates are often significantly higher than positive ones. This is because brokers profit from overnight swap charges. Also, ECN/STP brokers typically offer more favorable rollover rates compared to dealing-desk (DD) brokers.
When Does the Rollover Rate Become Significant?
The rollover rate becomes especially important in the following situations:
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When the interest rate differential between two currencies is significant (more than 0.50%)
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When a position is held for an extended period
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When a position is held overnight on a Wednesday (the rollover rate is tripled)
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When trading with leverage
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When using a broker that offers uncompetitive rollover rates (ECN brokers usually provide better rates than dealing desks)
What Is a Carry Trade Strategy?
Carry trade, or carry trading, is a popular Forex strategy that involves selling a low-yield currency and buying a high-yield currency. The goal is to profit from the interest rate differential between the two currencies. Carry trading can also refer to borrowing in a low-interest-rate currency, converting it into a high-interest-rate currency, and purchasing high-rated bonds.
Carry traders typically go long on currencies such as the New Zealand Dollar and the Canadian Dollar, and go short on currencies like the Japanese Yen and the Swiss Franc. The most popular currency pairs for carry trading include:
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AUD/JPY, NZD/JPY, EUR/JPY, USD/TRY, and GBP/CHF
How Are Rollover Rates Important to Automated Strategy Backtesting?
Since swap rates can significantly affect the profit or loss of trades held overnight, it's essential to factor them in when backtesting automated trading strategies.
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The MT4 Strategy Tester does not include swap rate values by default. However, there are tools within MT4 that allow traders to simulate the impact of swap rates.
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This consideration is especially important for strategies that hold positions for multiple days.
Compare Swap Rates
Table: Comparison of ECN/STP Forex brokers and their swap rates (Long vs. Short)
| FOREX SWAP RATES |
FOREX SWAP RATES (*)
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COMPANY
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ACCOUNTS |
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■ SWAP RATES:
■ Best Spread EURUSD:
■ Number of currency pairs: 50+ |
■ Founded: 2007
■ Regulation:
■ Min. Account: $10 for Standard Account $1,000 for Pro Account ■ Leverage: 1/30 and up to 1/400
|
|
|
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■ SWAP RATES:
■ Best Spread EURUSD:
■ Number of currency pairs: 70+ |
■ Founded: 2005
■ Min. Account: $10 ■ Leverage: 1/30 and up to 1/500 |
|
|
|
■ SWAP RATES:
■ Best Spread EURUSD:
■ Number of currency pairs: 55+ |
■ Founded: 2007
■ Regulation:
■ Min. Account: $200 for MT4 and MT5 $1,000 for cTrader ■ Leverage: 1/30 and up to 1/500
|
|
■ Forex Rollover (SWAP) Rates
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