What swap reflects
Swap is the financing adjustment for holding a position past the daily rollover time, typically 17:00 New York. Its underlying logic is the interest rate differential between the two currencies in the pair: before the broker's markup, long the higher-rate currency receives swap and long the lower-rate currency pays it.
On EUR/USD with the ECB deposit facility rate at 2.50% and the upper limit of the US federal funds target range (3.75–4.00%) at 4.00%, a long EUR/USD position is long EUR (lower rate) and short USD (higher rate). The annualised differential is −1.50%, so the trader pays. Both rates are set at central-bank meetings, and every figure in the example below moves when either changes; the broker's swap table gives the figure that applies on a given night.
The position is synthetic. No actual lending or borrowing of currencies occurs. In the wholesale market, interbank tom-next forward points set the cost of rolling a position one day forward; the policy-rate differential used in the example below approximates them.
Daily swap calculation, with worked numbers
For a long EUR/USD position of 1 standard lot held overnight, with rates as above:
Position notional = 100,000 EUR. Annualised differential = 2.50% − 4.00% = −1.50%. Daily swap before broker markup, on the actual/360 day count that EUR and USD money-market interest uses = 100,000 × −1.50% ÷ 360 = −€4.17 per day. Converted to USD at 1.0850: −€4.17 × 1.0850 = −$4.52 per day before markup.
Brokers add a markup to the underlying interbank rate. With an illustrative markup of 0.5–1.5% annualised applied to the differential, an assumption for this example because the markup varies by broker, the all-in rate widens to −2.0% to −3.0%, a debit of roughly $6 to $9 per day, well above the raw cost implied by the policy-rate differential.
Where a broker publishes only the daily swap figures in its contract specifications, the markup has to be inferred by comparing the published figure to the implied interbank rate. Comparing brokers requires comparing the same instrument and direction at the same notional size.
Wednesday triple swap and the T+2 settlement convention
Spot forex settles T+2 for most currency pairs: a trade made today settles two business days later. At Wednesday's rollover, an open position's settlement date moves from Friday to the following Monday, across the weekend.
Wednesday rollover therefore applies three days of swap rather than one. The same long EUR/USD position that pays $6 to $9 on a normal weekday pays approximately $18 to $27 on Wednesday. Each rollover charges one day of swap for every calendar day the settlement date moves, so a bank holiday that settlement has to skip changes which rollovers carry the extra days: before a Friday holiday, Tuesday's rollover covers four days (Thursday to Monday); before a Monday holiday, Wednesday's covers four (Friday to Tuesday).
Each multi-day charge, the Wednesday triple included, is applied as a single debit or credit at its rollover; this is convention, not malfunction. Other instrument classes can follow a different convention, such as a Friday triple charge or a charge on every calendar day. The broker's terms specify the convention used for each instrument category.
Swap cost over time, and the carry-trade idea
Holding the long EUR/USD example position for a full year of 365 nights at an all-in rate of 2.0% to 3.0% (the 1.50% differential widened by the markup) pays approximately $2,200 to $3,300 in swap alone, a 22% to 33% drag on a $10,000 account before any consideration of Spread, commission, or directional movement.
The same logic in reverse describes a carry trade. A short EUR/USD position at the same rates earns positive swap before broker markup; the markup reduces that credit and can remove it entirely or turn it into a debit. Strategies that hold positive-swap positions long-term to capture this credit are called carry trades.
The risk of a carry trade is exchange rate movement. A small positive daily swap does not offset a large adverse pip movement. The historical case is yen-funded carries — short JPY against high-rate currencies — which have earned positive swap for years and then unwound violently when JPY appreciated suddenly.
Swap on instruments other than forex
Undated (cash) CFD positions on equity indices and individual shares carry overnight financing analogous to forex swap, calculated against the broker's reference rate (typically the relevant benchmark rate, with a broker markup that differs by direction) rather than from a currency pair's interest differential; dated forward CFDs build the financing into the price instead.
A long CFD on a major equity index in a positive-rate environment pays daily financing — long the index is being long the asset and short cash, which costs financing. The figure is meaningful for positions held more than a few days. The broker's swap or financing tables publish the daily figure per direction per instrument.