What is ‘SWAP’ in MT4?

Filed under: Learn Forex Trading |

 

If you have been trading forex for a while, you have probably noticed that there are a few hidden costs. One of these is called the ‘Swap’, and you will find it in the terminal of your MT4 platform.

 

Figure 1.

If you look at Figure 1, you will see an example of the ‘swap’. If you look at the trade for the AUD/USD pair, you will see a swap figure of -11.26. This is a significant figure, and thus, you should investigate the charge further.

 

The swap is added or subtracted to your account when you have trades open when the trading day rolls over from a Wednesday to a Thursday. But don’t worry because you can have a swap both added or subtracted from your account – so it should even itself out in the long run.

 

The swap is the interest gained or given from the position that you hold. If you have bought some currency, then you will earn interest on the money that you effectively hold. However, if you make a sell trade, then you will have to pay interest on the money that someone else is effectively holding for you.

 

The calculations for the swap are a little complicated and it is not really necessary to go through it here. However, what you should know is that each currency has an interest rate, and you can earn credit or be debited interest when you buy or sell that currency. This amount you earn or give back depends on your lot sizes, which ultimately determined the amount of money that you are dealing with.

 

In summary, the swap rate is not something that you should simply ignore, as it is a factor in your profit and loss figures. However, in the long term, it should even itself out as you can both be credited and debited money from your account.

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