INSIGHTSSwaps, also known as rollover or overnight fees, are costs incurred for holding a trade overnight. In forex trading, when a position is kept open past a certain time (usually 5 PM EST), traders may either pay or receive interest depending on the currencies involved and their respective interest rates.
Generally, each currency pair has an associated interest rate differential. If a trader buys a currency with a higher interest rate and sells a currency with a lower rate, they may earn a swap. Conversely, the opposite transaction may result in a negative swap.
Swaps can influence trading strategy, as they impact the overall cost of holding positions, especially in longer-term trades. Most trading platforms provide information on swaps before executing a trade.