A swap or rollover in forex refers to the interest charge or credit applied to a trading position held open overnight.
Since forex is traded in currency pairs, you're simultaneously borrowing one currency while lending another. Each currency has its own interest rate set by its central bank. The swap reflects the difference between these two interest rates. If you're holding a currency with a higher interest rate against one with a lower rate, you may earn a credit. Conversely, if the currency you're long has a lower interest rate, you'll pay a charge.
Forex swaps arise from interest rate differentials between paired currencies, crediting higher-rate holdings while charging lower-rate positions held overnight.
Brokers typically apply this adjustment at 5 PM EST, and positions held over Wednesday night usually incur a triple swap to account for the weekend. These overnight swap transactions are commonly referred to as Tom/Next or Spot/Next, which allow traders to roll forward their positions to the next trading day while avoiding physical delivery of the currencies. These transactions function as simultaneous spot and forward currency exchanges that effectively extend the settlement date of the original position.
In short: Swap is the interest paid or earned for holding a forex position overnight, based on the interest rate differential between the two currencies in the pair.
Example in Action
A South African trader buys 10,000 USD/ZAR at 18.50 on Monday and holds the position overnight.
The South African Reserve Bank interest rate is 8.25% while the US Federal Reserve rate is 5.50%, creating a positive interest rate differential of 2.75% in favor of the rand.
Because the trader is long USD (buying dollars, selling rand), they are borrowing the higher-yielding currency and lending the lower-yielding one, resulting in a swap charge of approximately -15 ZAR debited from their account when the position rolls over at 5pm New York time.
If the trader had instead sold USD/ZAR, they would have earned a positive swap credit instead.
The trader's ability to control this 10,000 USD position with only a fraction of capital upfront demonstrates how leverage and margin work together in forex trading.
Institutional traders managing longer-term currency exposures often use cross-currency swaps to exchange both principal and interest payments in different currencies, providing a more comprehensive hedging solution than simple rollover charges.
Why It Matters
Understanding swap rates can mean the difference between a profitable quarter and one that quietly bleeds money through overnight fees.
African traders holding positions for days or weeks face cumulative costs that add up fast. Brokers don't advertise this loudly.
Central bank rate changes in Nigeria, Egypt, or South Africa can flip swap charges overnight.
Ignoring rollover mechanics? That's expensive ignorance.
Common Questions
Do Islamic Forex Accounts Offered in North Africa Truly Have Zero Swap Costs?
Islamic forex accounts in North Africa eliminate traditional swap fees, but brokers typically impose alternative costs—such as wider spreads, administrative fees, or per-lot commissions—to maintain profitability while adhering to Sharia compliance principles.
How Do Nigerian Naira Devaluation Events Affect Overnight Rollover Calculations for Local Traders?
Naira devaluation sharply increases swap costs for Nigerian traders holding foreign currency pairs, as widening exchange rate gaps amplify overnight funding charges, erode margins, and often trigger unexpected margin calls or forced position closures during volatile realignment periods.
Can South African Brokers Charge Different Swap Rates Than International Brokers for Same Pairs?
Yes, South African brokers set swap rates independently based on local funding costs, FSCA regulations, liquidity access, and internal markups. International brokers use different pricing models, causing notable rate variations for identical pairs despite underlying interbank differentials.
Do Kenyan Mobile Money Deposit Delays Impact When Swap Charges Are Applied to Trades?
Yes, Kenyan mobile money deposit delays can shift when funds reach trading accounts, potentially causing positions to open after the broker's daily swap cutoff time, thereby delaying swap charge application until the next eligible rollover period.
Why Do Egyptian Pound Pairs Often Have Higher Rollover Fees Than Major Currency Pairs?
Egyptian pound pairs carry higher rollover fees due to Egypt's elevated interest rates, lower liquidity, currency risk from economic instability, capital controls, and regulatory uncertainty. Major pairs benefit from deep markets, stable rates, and minimal sovereign risk premiums.
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