How do swaps work in trading?

Swaps, also known as rollover rates, represent the interest paid or earned for holding a leveraged position overnight in Forex and other markets. When a trader opens a position, they are effectively borrowing money to trade a larger amount than their initial investment. The swap rate is determined by the interest rate differential between the two currencies involved in the trade. If a trader holds a position overnight, they either pay or earn a swap depending on whether they are buying or selling the currency pair. It's important to note that these rates can vary by broker and are influenced by central banks' monetary policies. Understanding how swaps are applied could impact trading strategies, particularly for positions held over longer periods.