How do swaps work in trading?

In trading, swaps refer to the interest rate differential between two currencies in a forex pair, which is applied when a position is held overnight. Typically, a swap is either a credit or a debit that results from this interest rate differential, depending on the direction of the trade and the interest rates of the currencies involved. If you are holding a long position on a currency pair with a higher interest rate than the counterpart, you may receive a swap payment. Conversely, if the interest rate of the currency you are buying is lower, you may incur a cost. Swaps vary by broker and can be influenced by market rates, impacting overall trading costs.