How do swaps work in trading?

Swaps, also known as rollover rates, are interest payments made for holding positions overnight in Forex or other markets. When a trader holds a position beyond the market's daily close, they either receive or pay interest based on the interest rate differential between the two currencies involved. The swap rate is influenced by the current interest rates of the countries whose currencies are being traded and the demand for each currency. Essentially, if you are long on a currency with a higher interest rate compared to the currency you are short, you may earn swap interest. Conversely, if the short position has a higher rate, you would incur a fee.