The global broker OctaFX recently announced that it went swap-free in all countries where it operates. Now traders don’t have to pay this type of fee if they leave their orders open overnight. But why did they pay it in the first place? Let’s explore swap fees and why brokers charge them.
Forex trading usually implies using leverage to open larger positions which could generate more profit. Since using leverage is a way of borrowing money from a broker, traders have to pay interest when their orders are open longer than one day. Swap is a way to charge it.
OctaFX Goes Swap-Free: Here’s How It Will Affect Traders
Swap fees depend on the interest rate differential between the currencies in a pair, called the swap rate. Swaps are calculated based on whether the order is short or long and are usually charged at midnight. On Wednesday night, traders have to pay weekend swaps triple the usual size. They mostly use an intraday strategy to avoid paying swaps, which significantly narrows their investment experience.
A swap fee can sometimes—though quite rarely—be paid to a trader. How? The answer is in the swap rate, which sometimes can be positive, provided that the interest rate of one currency is negative.
The formula for calculating the fee is as follows:
Swap = (lots * long or short points * point size)
Let’s calculate the swap for one of the most popular currency pairs, EURUSD. If a trader opens a long EURUSD order of 10,000 units and closes it the next day, the swap would be:
(0.1 * –5.616 * 1) = –0.56 USD
Charged every day, swap fees tend to accumulate with time and make trading less profitable. To enhance investment opportunities for its clients, OctaFX decided to remove swaps. These fees will no longer stop traders from using mid-term and long-term strategies in the financial market. They can now hold as many orders as they want for as long as they want and not be charged any swap fees.