When you hold positions through rollover each day, a financing debit or credit might be applied. This is known as a swap or rollover. For that reason, if you are a longer term trader it pays to be aware of what swaps are and how they work.
What are Swaps?
Our CFDs aim to replicate underlying assets as closely as possible. To that end, any costs of funding a trade that would exist in the underlying market are passed on.
For FX symbols, this is typically determined by the interest rate differential between the two currencies being traded.
For many products such as Indices, the cost of financing a long position is typically related to the cost of borrowing funds in that market. Conversely, a short position might earn that same interest rate as you are in effect shorting the asset and holding the currency.
Commodities can have quite varied swaps. This is because there are other factors involved, such as the cost or availability of storage in the market for that commodity. For example, it could be costly or difficult to store an asset such as Natural Gas. Or, storage might be full, creating changes in the cost to carry a position. Such as those seen in the Oil market in recent years.
In general, there is also a market spread between the rate earned compared to the rate paid on any asset. This applies to all symbols traded with us. Swaps are charged during Rollover each day, at 5pm New York time.
How are Swaps Calculated?
The swap rate that applies to your position is likely to change day to day. Because markets are never static, and interest rates or storage fundamentals are constantly changing. However, the main impacts to the swaps you incur on a given day will depend on 4 factors:
- What you are trading: because different symbols might use different swap calculations, and be impacted by the fundamentals and interest rates of the underlying assets.
- The size of your trade: as swap amounts are usually applied in proportion to the size of the trade.
- Whether your position is long or short: which determines which currency or asset in a pair you are buying and which you are selling.
- Your account type: where Swap-free accounts may not incur any swaps at all, but may have other fees associated.
Depending on the symbol, the swap rates might be quoted to you in:
- Points charged per day
- An annual interest rate
- A set amount in dollars
Each of these methods uses a slightly different method of calculation. You can use our free Swap Calculators to understand any expected swaps in detail.
Swap-free Accounts
While swaps are a feature of markets, we understand that they are not an option for everyone. That’s why we offer a Swap-free Account to our traders who need trading without interest for religious reasons. This account type is custom made to comply with religious needs, such as our Islamic traders might have. If you need this account type, don’t hesitate to contact us to ensure you’re able to trade swap free.