Overnight swap and swap-free accounts
What you learn in 3 minutesA reader asked: 'If I hold one lot of USD/ZAR overnight, does it cost me anything?' The answer is that it usually does, and the charge is called swap. This lesson shows what swap is, how it is worked out on one lot, and what changes when a broker offers a swap-free account.
1 lot of USD/ZAR held one night: swap against swap-free
| Step | Amount | Note |
|---|---|---|
| Position size | 1 standard lot | One standard lot of USD/ZAR is 100,000 US dollars of notional value. |
| Reference price | 18.4100 | The USD/ZAR price used for this illustration. |
| Notional value in rand | R1,841,000 | 100,000 multiplied by 18.4100. |
| Swap rate quoted by the broker | -R42.00 per night | A swap rate is set by the broker and varies between brokers, so this figure is an example only. |
| Swap over five nights | -R210.00 | R42.00 multiplied by 5. |
| Swap-free administration charge | R60.00 per night | A swap-free account usually replaces swap with a fixed charge, which also varies between brokers. |
| Swap-free charge over five nights | R300.00 | R60.00 multiplied by 5. |
The broker may round the swap, add a mark-up, apply a wider spread on a swap-free account, or charge triple swap on one day of the week. Check the fee schedule before holding a position overnight.
The mistake people make here
The common mistake is to assume that a swap-free account is simply cheaper. It removes the swap but usually adds a fixed administration charge or a wider spread, and on the figures above the swap-free route costs more over five nights. The second mistake is to ignore swap entirely and hold a leveraged position for weeks, letting a small nightly charge grow into a large one. Before opening a position, read the broker's fee schedule and work out the nightly cost on your actual lot size. If you plan to hold for more than a few days, compare both account types using your own numbers.Check yourself
If the swap is -R42.00 per night, what is the swap over ten nights?
R42.00 multiplied by 10 equals R420.00.
If the swap-free charge is R60.00 per night, how many nights pass before it costs more than a swap of R42.00 per night?
From the first night, because R60.00 is greater than R42.00. Over five nights the difference is R300.00 minus R210.00, which is R90.00.
In South Africa
- Currency
- The rand, written R (ZAR).
- Instrument in this lesson
- USD/ZAR, around 18.4100.
- Regulator
- The Financial Sector Conduct Authority (FSCA) licenses financial services providers in South Africa.
- Funding methods
- EFT, instant EFT and bank cards are common ways to fund a trading account.
- Swap rates
- Swap rates and swap-free charges are set by each broker and vary between brokers.