[Andrés]

Hey everyone, quick question because I’m still figuring all this out! I noticed my broker these overnight fees (I think they’re called swap or rollover fees?) and I’m trying to wrap my head around why they exist. Like, what exactly am I being charged for? And how do they even calculate those fees? Sometimes they seem small, but other times they’re bigger than I expected. Would love if someone could break it down in simple terms for me. thanks!

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[Christian Harris]

Overnight or swap fees are charges you pay when you keep a position open past the end of the trading day.

These fees are based on the interest rate difference between the two currencies in a forex pair or the cost of holding a leveraged position in other markets.

If the interest rate on the asset you’re buying is higher than the one you’re selling, you might earn a small amount instead of paying a fee.

You usually pay a small percentage to hold your trades overnight. These fees can add up over time, so factoring them into your trading strategy is essential – especially if you’re a swing trader.

However, swap fees are not charged on all instruments.

They are most commonly applied in forex trading, reflecting the interest rate difference between two currencies in a currency pair. Swap fees can also apply to commodities, indices, and stocks if you are using leverage.

Specific trading instruments, like spot cryptocurrencies or real stocks/ETFs, typically do not have swap fees because no borrowing is involved.

Always check with your broker to see which instruments have overnight charges.

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[Andrés]

Hey, thanks for the detailed explanation, Christian! Quick question though, like is it solely based on the interest rate difference or do brokers add their own markup? Also if I use a swap free account can I just bypass these or is there a catch to those?

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[Christian Harris]

Swap fees are not solely based on the interest rate differential between the two currencies in a forex pair.

While the core of the swap fee reflects the difference between the interest rates set by the respective central banks, brokers often add their markup to this rate.

This markup is part of how brokers generate revenue, especially for accounts with low or zero commissions.

The exact markup can vary depending on the broker’s policies and whether you hold a long or short position.

Swap-free accounts (often marketed as Islamic accounts due to Sharia law prohibiting interest) allow you to bypass traditional swap fees.

However, there’s usually a catch:

Administrative fees: Instead of swaps, brokers may charge a flat administrative fee or widen the spreads to compensate for the loss of swap revenue. This fee structure varies widely between brokers.

Restrictions: Some brokers limit the range of instruments available on swap-free accounts or impose time limits on how long positions can be held without incurring fees.

Account eligibility: Not all brokers offer swap-free accounts to non-Muslim traders, and some may require documentation for religious compliance, though others provide it to all clients.

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[Andrés]

Hey, appreciate the info! Quick one – if I’m not Muslim, should I just skip the swap free account altogether? Don’t wanna risk running into restrictions or random fees if I’m holding positions for days. Also do daytrading.com site track which brokers have the lowest overnight fees?

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[James Barra]

Hi Andrés,

DayTrading.com doesn’t currently track overnight fees for all the brokers in our database.

However, take a look at our low-cost brokers. These rankings take into account a wide range of trading and non-trading fees.

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[Andrés]

Hey, appreciate the options. Had a rough time with one of those firms before, so I’ll be passing on that one but I’ll check out what I can find on the overnight fees for some of the others. Definitely seems like a useful metric to have in the back pocket if you lot do want to add it to your site…

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