Forex & CFD

I am a Forex trader. What happens with my position in the FOREX and CFD markets overnight?

We use swaps to roll over open positions overnight in the Forex and CFD markets. They can be both negative and positive depending on the difference of interest rates. The sum, credited/debited as a pay for rolling over a position is called storage. The final sum of the swap depends on many factors, such as current interest rates in different countries, movement of the estimated pair, forward market conditions, dealer's expectations and swap-points of broker's counteragent. Below theoretical basis for market swaps calculations are provided.

Important: To simplify swap calculation it is recommended to use Trader's Calculator.

Let's suppose that the interest rate of the European Central Bank (ECB) is 4.25%, and the FED interest rate is 3.5% per annum. Let's assume that you have a short position (Sell) on EURUSD per 1.0 lot. So, you have to sell 100 000 EUR. That is, you have to borrow them at the rate of 4.25%. By selling the Euro you buy US Dollars, which are deposited at the rate of 3.5%. If the interest rate of the country the currency of which you have bought (USD – 3.5%) is more than the interest rate of the country the currency of which you have sold (EUR – 4.25%), the swap expressed in the deposit currency will be credited to the trading account, otherwise it will be debited. It should be also mentioned that a swap also includes broker's rollover commission.

In all, your expenses on the transaction will be equal to 1% annual (the difference between the interest rates «InterestRateDifferential» = 4.25% - 3.5% = 0.75%) plus broker's commission for transferring your position to the next day (e.g. 0.25%). Then it is necessary to covert a swap value from annual percents into the deposit currency.

Example 1. Short positions (Sell) transferring to the next day in the Forex market:

As you buy a currency with a lower interest rate (USD – 3.5%) than you sell (EUR – 4.25%), the swap will be debited from the trading account.

Let's consider the formula:
SWAP = (Contract * (InterestRateDifferential + Markup) / 100) * Price / DaysPerYear,
where
Contract = 100 000 EUR (1 lot);
Price = 1.3500 – current market price of the currency pair (EURUSD);
InterestRateDifferential = 0.75% – the difference between the interest rates of the countries;
Markup = 0.25% – broker's commission;
DaysPerYear = 365 – number of days in a year.
Calculation:
1. SWAP = (100 000 * (0.75 + 0.25) / 100) * 1.3500 / 365 = 3.70 USD;
2. If RUR is a deposit currency a swap should be converted from USD into RUR at USDRUR rate at the moment of swap crediting/debiting. That is 3.70 USD should be multiplied by the current rate of USDRUR, e.g. 25.80. In this case SWAP = 3.70 * 25.80 = 95.46 RUR.

That is, when the open short position (EURUSD) is transferred to the next day either 3.70 USD or 95.46 RUR, depending on the deposit currency, will be debited from your trading account from each lot.

Example 2. long position (Buy) transferring to the next day in the Forex market:

If you have a long position (EURUSD) a swap will be credited to your trading account, as you have bought a currency with a higher interest rate (EUR – 4.25%) than sold (USD – 3.5%).

The formula for swap calculation:
SWAP = (Contract * (InterestRateDifferential - Markup) / 100) * Price / DaysPerYear.
Calculation:
1. SWAP = (100 000 * (0.75 - 0.25) / 100) * 1.3500 / 365 = 1.85 USD;
2. SWAP = 1.85 * 25.80 = 47.73 RUR.

That is, when an open long position (EURUSD) is transferred to the next day either 1.85 USD or 47.73 RUR, depending on the deposit currency, will be credited to your trading account from each lot.

Sometimes the difference between interest rates does not exceed broker's commission. In this case a swap is debited from a trading account for long (Buy) and short (Sell) positions.

Swap-points table is given on our web-site at page Contract Specifications. In the table a swap is expressed in points. In order to convert points into the deposit currency a swap value from the Specifications should be multiplied by 1 pip value of the currency you need.

Note: Storage for transferring your position from Wednesday to Thursday is credited/debited threefold as the value date for the position opened on Wednesday is Friday. When the position is rolled over from Wednesday to Thursday the value date increases not for one day but for three days and it becomes Monday. That’s why storage from Wednesday to Thursday is debited/credited threefold.

Let's consider how open positions are rolled over in the CFD on shares market.

We can say that a contract for difference can be qualified as shares purchasing on the proceeds of the credit. If you trade CFD you get all the benefits of the underlining share, including price rise and dividends, and pay off on-credit expenditures to the seller. It's a kind of a bank credit: you borrow money to buy shares and get the benefits of a shareholder and bank takes an interest. CFD presents this process as a single deal. And other way around if you sell shares.

Example 3. You buy CFD on shares or ETF:

If you haven't closed your Buy position before a trading session ends you should pay for the granted credit on the basis of the FED Funds Rate (for shares), close price of the share and broker's rollover commission to figure out a swap.

Let's suppose that the FED Funds rate is 4.75%, and the close price of Microsoft shares is 25.00 USD. Then you have to pay for the granted credit.

Let's consider the formula:
SWAP = (Contract * PriceClose * (IntrestRate + Markup) / 100) / DaysPerYear,
where
Contract = 100 shares (1 lot);
PriceClose = 25.00 – close price (Microsoft);
InterestRate = 4.75% – FED Funds Rate — for shares;
Markup = 1.25% – broker's commission;
DaysPerYear = 365 – number of days per year.
Calculation:
1. SWAP = (100 * 25.00 (4.75 + 1.25) / 100) / 365 = 0.41 USD;
2. SWAP = 0.41 * 25.80 = 10.58 RUR.

Then when transferring an open long (Buy) position on Microsoft shares to the next day either 0.41 USD or 10.58 RUR will be debited from your trading account depending on the deposit currency.

Example 4. You sell CFD on shares or ETF:

If you haven't closed your Sell position before a trading session ends you will be credited some sum of money on the basis of the FED Funds Rate (for shares), close price of the sold shares and broker's rollover commission.

Let's suppose that the FED Funds rate is 4.75%, and the close price of Microsoft shares is 25.00 USD.

Let's consider the formula:
SWAP = (Contract * PriceClose * (IntrestRate - Markup) / 100) / DaysPerYear.
Calculation:
1. SWAP = (100 * 25.00 (4.75 - 1.25) / 100) / 365 = 0.24 USD;
2. SWAP = 0.24 * 25.80 = 6.19 RUR.

When transferring an open short (Sell) position on Microsoft shares to the next day either 0.24 USD or 6.19 RUR will be credited to your trading account depending on the deposit currency.

Sometimes the Fed interest rate does not exceed broker's commission. In this case a swap is debited from a trading account for long (Buy) and short (Sell) positions.

Swap-points table is given on our web-site at page Contract Specifications.

Note, that the interest «paid» for the position left open from Friday to Monday is three times higher as your position is credited for 3 days.

Rollover of open positions on CFD on futures.

When open positions on CFD on futures are rolled over overnight a storage is not credited/debited.

Rollover of open positions on Gold (Spot).

Swap on Gold (spot) is calculated like the one on CFD on shares.

Note: Storage for transferring your position from Wednesday to Thursday is credited/debited threefold as the value date for the position opened on Wednesday is Friday. When the position is rolled over from Wednesday to Thursday the value date increases not for one day but for three days and it becomes Monday. That’s why storage from Wednesday to Thursday is debited/credited threefold.