Hello everyone,
I am trying to understand SWAP. I know that it is a “fee” for keeping an open trade but I don’t know how it affects my trading (in terms of balance/equity).
Let’s make it simple and have an easy example.
I got £1000 in equity / balance (no open trades).
I open a trade (let’s say GBP/USD) on Monday (let’s make it ideal - there is no spread).
Let’s say that one day swap is £1 and every day there is an equal swap (no Wednesdays etc).
On next Monday my trade has gained £100 (yeey, success!) and I decide to close it.
On the account I have the following:
Swap -£5 Profit £100
Questions are:
When the first day ends (considering there was no movement in price) will I have £1000 equity? Will I have £1000 Balance?
What about Tuesday / Wednesday / Thursday / Friday? (Still considering no movement in pair price.)
What will the equity be at the moment of closing my trade?
What will the balance be at the moment of closing my trade?
I am asking because I don’t know if spread is being deducted every day from my equity or does it only count at the moment of trade closure.
Believe your balance should remain £1000 till you close the trade. Your equity should reflect the changes from the daily swap (which can even be a net positive carry trade) for each day the trade is active. Balance & equity should be equal to each other at close of trade (provided that’s only trade you had) = £1095.
The spread is applied only at the time of order execution. So if you place a pending order today and it executes sometime tomorrow it will consider the spread quote tomorrow, when the order is executed. Spreads aren’t necessarily fixed and are generally smaller during active hours when there’s liquidity if your broker allows variable spreads.
Not sure about other platforms but you can get more details about the swap charts in MT4/5 as described in link below. It also contains and example of a swap credit and debit and the math behind it based on the contract details found in MT5.
Considering hypothetical situation where the price doesn’t move, I could hold my trade open for a thousand days before if would get automatically closed down (let’s say there is no safety buffer and I am allowed to have equity of few pounds before the margin call)
The swap is not accrued on a daily basis - my equity does not shrink by £1, then by £1+£1, then by £1+£1+£1 (after those three days I would have £994 in equity). This means swap is not being deducted from my equity as a sum of today’s swap + tomorrow’s swap + the day after swap and so on?
The swap value shown in the trade’s details until it’s open means this will be deducted at the moment of trade closure. Therefore if I get to have a trade with positive swap, it does not mean that I am earning this swap every day but only at the “end” of the transaction.
Yep. If negative it’s exactly as described. Doesn’t always have to be negative, which is the premise behind the carry trade.
If the swap charge is -£1, then that is the daily deductible. Since it’s a daily deductible that particular charge may vary in the event the interest rate differential changes between Central Banks (as is what just happened with the 0.25% hike with the BOE and is expected to happen with the ECB & FOMC).
It’s easier to imagine as an interest rate accrued in a savings account. Except that it is calculated & applied daily (I% divided by 365) and that it can be a negative value.
Yep. You accumulate it every day but is technically credited at time of trade closure. Since it’s the interest rate differential it can flip during times of quantitative easing/tightening (as is the case now) so a positive charge till date can immediately start incurring negative values when it happens.
Swap is the fee you pay if you hold positions overnight. Swap rates are based on interest rate differential between the currency you buy and the currency you sell + broker markup. If a pair you trade contains currencies with very high and very low interest rates there can be positive swap and you will earn holding positions overnight.
the swap is creat to kill certain trading strategies，espcially those who doesnt stoploss and winning.
but when you hedge positions from different ac(1 normal and 1 swap-free) and try to profit from swab ,they just took it away at will，why the double standard? it’s simple ,because i don’t creat this mf game to let you win ,easy right?