Brokers' Commissions

The swap, also called the overnight rate, represents the amount paid at the end of the day to the broker if we wish to keep our trade open until the next day.

Usually at 23:00 Italian time the broker automatically closes the open market transaction and reopens it immediately afterwards.

 

 

The broker basically rolls over our trade to the next day and charges us for it.

In the case of the Forex market, the cost of the rollover depends on the interest rate differential between the two currencies involved in the transaction.

It should therefore be pointed out that the swap does not always represent a cost, since depending on the currency cross we are trading and the type of operation opened (long or short), it can also be positive since it is calculated as the differential between the rates of the two currencies and can therefore be added to the profit produced by our operation.

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 Let's take an example. 

​As always, we opt for a particular transaction basedon the objectives we have set ourselves, our skills, our risk profile and the strategy we have chosen. Ifwe think that the EUR-USD exchange rate will fall, we will decide to trade down (short) by selling EUR and buying USD. If the interest rate on the EUR is0.25% and on the USD 1.00%, after 11 pm (overnightposition) the broker will calculate the swap rate bysubtracting 1.00% of the USD from 0.25% of theEUR to obtain a (negative) rate of -0.75%. If, on theother hand, we had had an upward 

trade, we wouldhave collected 0.75%.

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 The swap varies from broker to broker.

You can check the swap value in the MT4 platformby right-clicking on the specific asset and selecting "market watch" or "market view". ​

The Babastocks team provides valuable support tothe client in identifying and selecting reliable brokers that offer a rollover service at the real rates appliedby central banks.