Overnight swap and swap-free accounts
What you learn in 3 minutesThis lesson shows how a daily charge called swap can quietly change the cost of holding a position overnight, and how a swap-free account removes that charge but usually adds another. You will work through one standard lot of EUR/USD around 1.0850, first with swap and then with a swap-free account, so you can see the difference in shillings before you open any trade.
One standard lot held overnight: swap against swap-free
| Step | Amount | Note |
|---|---|---|
| Position size | 1 standard lot of EUR/USD | 100,000 units of the base currency, as stated in the course rules. |
| Price used | 1.0850 | The example rate for EUR/USD. |
| Value of one pip | 10 units of the quote currency | 100,000 multiplied by 0.0001 equals 10. |
| Swap charge for one night | KSh 325 | This is an illustrative swap of 2.5 pips. 2.5 pips multiplied by 10 units per pip equals 25 units of the quote currency. At an illustrative conversion rate of 13 KSh per unit, 25 multiplied by 13 equals KSh 325. Your broker's swap rate and conversion rate will differ. |
| Swap-free administration charge for one night | KSh 260 | This is an illustrative fixed charge of 20 units of the quote currency. 20 multiplied by 13 equals KSh 260. The charge varies between brokers. |
| Difference for one night | KSh 65 | KSh 325 minus KSh 260 equals KSh 65. In this example the swap-free account costs less for one night, but the charge is fixed and does not depend on the swap rate. |
The broker may round the swap or the administration charge, apply a wider spread on a swap-free account, or quote the charge in the account currency rather than in KSh. Check the contract specifications before you trade.
The mistake people make here
The common mistake is to compare only the headline swap number and ignore the other costs on a swap-free account. A swap-free account often has a wider spread or a fixed administration charge, so the total cost can be higher than a standard account, especially if you hold the position for several nights. Before you choose, ask the broker for the swap rate, the administration charge, and the typical spread on both account types. Then work out the cost for the number of nights you expect to hold, using the pip value method from this lesson. If you are not sure, keep the position open for one night in a demo account and compare the two statements.Check yourself
If one pip on one standard lot of EUR/USD is 10 units of the quote currency, and the conversion rate is 13 KSh per unit, what is the value of 3 pips in KSh?
3 pips multiplied by 10 units per pip equals 30 units. 30 multiplied by 13 equals KSh 390.
A standard account charges a swap of 2 pips per night. A swap-free account charges a fixed administration fee of 15 units of the quote currency per night. The conversion rate is 13 KSh per unit. Which is cheaper for one night, and by how much?
Standard account: 2 pips multiplied by 10 units per pip equals 20 units. 20 multiplied by 13 equals KSh 260. Swap-free account: 15 units multiplied by 13 equals KSh 195. The swap-free account is cheaper by KSh 65 (260 minus 195).
In Kenya
- Regulator
- The Capital Markets Authority (CMA) is the regulator for investment firms in Kenya.
- Money
- The shilling is written KSh (KES).
- Payment methods
- M-Pesa and bank transfer are common ways to move money to and from a trading account.
- Swap-free accounts
- Some brokers offer swap-free accounts to clients in Kenya, but the terms and charges vary between brokers.
- Costs
- Swap rates, administration charges and conversion rates are set by the broker and can change.