Understanding how “swap” happens in the world of forex – and how to avoid swap fees in forex, too – is critically important for beginner and master traders alike.
If you are serious about making money in the Forex market (we are talking serious amounts of money) you need to do your level best to mitigate and eliminate fees as much as possible. Fees might not look like much on the surface but they pile up in a hurry – and before you know it you are seeing a huge chunk of your forex profits eaten away without you even realizing it’s happening.
You can avoid paying swap fees in forex by:
- Closing all open positions before the market closes at night.
- Trading in the direction of the positive swap on the currency pair.
- Using an Islamic trading account.
How to Avoid Swap Fees in Forex
To kick things off, it’s important to understand exactly what swap fees are in the first place – and then how to avoid swap fees in forex as often as possible.
To put it bluntly, a swap in the world of forex happens if you are holding open positions overnight.
If this is your situation you’re going to find that your account is either credited or debited, depending entirely on the specific trade direction and traded pair.
Sometimes swap charges can be referred to as “rollover fees”. But the overwhelming majority of serious investors call these swap fees – cutting right to the chase.
It’s important to remember that when you are trading currencies in the Forex world you’re actually trading cash.
When you trade “long” on a position it’s a lot like you are holding a deposit at a bank. And just like if you had cash in the bank you’d expect to earn interest on that deposit.
On the flip side of things, if you trade “short” on a currency it’s a lot like you are borrowing money from a bank. And, just like if you borrowed money from a bank, the lender would expect you to pay interest.
In the Forex world, though, if you are holding a currency pair that has one currency with a positive balance (the long position) and a currency with a negative balance (the short position) you’ll end up dealing with a “interest-rate differential”.
Now let’s run through avoiding Forex swap fees. There are three key ways you can avoid swap fees altogether.
For starters, you can trade in a direction of positive interest.
The idea here is to trade only in the direction of the currency you’re looking at that gives a positive swap. This gives you the most favorable direction, especially when you are back or forward testing your trade strategies.
Secondly, you could trade only intraday and close out all of your positions as soon 10 PM GMT hits on the clock.
This approach allows you to avoid swap because you get in and out of the Forex market before you get into rollover time. Of course, being an intraday trader is not for everyone – and not all forex strategies have room for this swap fee avoidance approach, either.
That’s where the third strategy comes into play.
Trading on Islamic Forex Accounts to Avoid Swap Fees
Learning to trade on Islamic Forex accounts (available from most major brokers) gives you an opportunity to avoid swap fees altogether.
These kinds of accounts are available to anyone and everyone (Muslim or not) and are designed to be run in full compliance with the beliefs of Islam.
One of those tenants is that there can be no interest whatsoever paid on business transactions. The second that interest is included into the mix that type of behavior is considered haram and needs to be avoided entirely. This leads into the bigger argument of whether forex trading itself is Halal or haram.
Islamic swap free accounts guarantee that positions are closed out before swap could even become a factor. They are well worth a closer look if you want to be sure that you aren’t getting slapped with any swap fees!
Are Forex Swap Fees Charged Daily?
Forex swap fees are in fact charged daily if you are holding a position overnight, when swing trading for instance.
As we mentioned a moment ago, the swap fees that you might be looking at are always going to be significantly influenced by the underlying interest rate attached to each of the two currencies in the pairs that you are trading.
If you hit the daily rollover point (sometimes called 00:00 server time) you get into swap fees automatically.
Traders that operate 100% intraday only are really never going to have to worry about getting into rollover time, dealing with swap fees, or navigating these often expensive decisions.
It’s critically important that you make sure you aren’t getting into rollover time when you are investing in forex if you want to avoid swap fees as well.
We highlighted three different strategies earlier to help you avoid these kinds of expenses. They are rock solid approaches to pocketing more of your profits, keeping you from paying high interest rate differentials, and dealing with the inevitable headache and hassle rollover brings to the table.
Lean into those strategies.
Rely on them to help you avoid swap fees altogether, even if you aren’t interested in becoming an intraday trader.
You’ll also want to look into the details behind how your broker calculates rollover time, how they calculate swap fees, and whether or not you are going to be responsible for ponying up the cash to cover your swap fees on a day-to-day basis or if you can pay them in aggregate.
Remember, though, that carrying trades are a huge part of the forex landscape.
The odds are pretty good that if you’re not intraday trading you’re going to bump up against the potential for these kinds of fees, especially if you aren’t using our strategies from earlier to eliminate those fees altogether.
You’ll want to calculate these kinds of fees into all of your trading decisions to make sure that the profitable position your about to take isn’t just smoke and mirrors!
In Conclusion – How Can You Avoid Swap Fees In Forex?
In summary, you can avoid swap fees by:
- Trading on Islamic Forex Accounts
- Intraday Trading Only
- Trading in the direction of a positive interest swap.
The forex market is a great place to invest, but you need to be aware of the fees associated with trading. Swap fees can eat into your profits if you’re not careful. Luckily, there are a few ways to avoid them.
How do you avoid paying swaps on your trading positions? Let me know in the comments down below.