Swap is the interest paid or earned for holding a position overnight. Each currency has an interest rate associated with it, and because forex is traded in pairs, every trade involves not only two different currencies, but their two different interest rates.
10 p.m. in GMT is considered the beginning and end of the forex trading day at UBFX. Any positions that are open at 10 p.m. sharp are considered to be held overnight, and are subject to swap. A position opened at 10:01 p.m. is not subject to swap until the next day, while a position opened at 9:59 p.m. is subject to swap at 10 p.m.
A credit or debit for each position open at 10 p.m. appears on your account within an hour, and is applied directly to your accounts balance.
[Weekends and Holidays] Most liquidity providers (which include global banks, financial institutions, prime brokers and other market makers) across the globe are closed on Saturdays and Sundays, so there is no swap on these days, but most liquidity providers still apply interest for those two days.
To account for that, the forex market books three days of swap on Wednesdays, which makes a typical Wednesday swap three times the amount on Tuesday. There is no swap on holidays, but an extra days worth of swap two business days before the holiday.
Typically, holiday swap happens if any of the currencies traded has a major holiday. Therefore, Independence Day in the USA, July 4, closes American liquidity providers, and an extra day of swap is added at 5 p.m. on July 1 for all U.S. dollar pairs.
Yes. In addition to our policy of transparency in reporting swap, due to the average notional trading volume that UBFX generates to the liquidity providers it deals with, UBFX is able to pass to its clients' attractive swap rates on both sides of every currency pair.
Here is an example:
When you buy the EUR/USD pair, you are buying the euro and selling the U.S. dollar to pay for it.
If the euro interest rate is 4.00%, and the U.S. rate is 2.25%, you are buying the currency with the higher interest rate, and you will earn swap -- about 1.75% on an annual basis.
If you sell the EUR/USD pair, you are selling the currency with the higher interest rate, and you will pay swap -- about 1.75% on an annual basis, since you are paying the euro interest rate and earning the U.S. interest rate.
No interest is paid or received if you open and close a position in the same trading day.
Swaps are only applied to positions held overnight, or at the close of the trading session at 10:00pm GMT. Some brokers will apply swaps on a second by second basis; however this policy can ultimately end up costing you more money in transaction costs in the form of swap charges.