Swing and position trading
What you learn in 3 minutesSwing trading means holding a position for several days, and position trading means holding for weeks. The cost of holding changes: you stop paying the spread again and again, but you start paying a swap fee for every night you keep the trade open.
Four days on EUR/USD: 40 pips, then swap
| Step | Amount | Note |
|---|---|---|
| Instrument and size | EUR/USD, 0.10 lots | 0.10 of a standard lot, so pip value is one tenth of the standard figure |
| Pip value at this size | 1 unit of the quote currency per pip | One standard lot is 10 units per pip; 0.10 lots is one tenth of that |
| Entry | 1.0850 | Price used for the whole example |
| Exit after four days | 1.0890 | 40 pips in favour of the position |
| Gross result | 40 units of the quote currency | 40 pips x 1 unit per pip |
| Swap | 3 nights charged | Swap is charged per night held; many brokers charge triple on one weekday, and the amount varies between brokers |
| Swap cost in the quote currency | 12 units | 4 units per night x 3 nights; this rate varies between brokers and by direction |
| Net result in the quote currency | 28 units | 40 minus 12 |
| Converted to KSh | KSh 3,640 | 28 units x the KES rate used here, 130 |
The broker may round the swap, charge triple swap on one weekday, and quote a slightly different conversion rate at the moment you close. Check the swap figure on your own platform before you hold a position overnight.
The mistake people make here
Many beginners open a trade, watch it move 40 pips in profit, and hold for a week without ever checking the swap. They assume the only cost is the spread they paid at entry. Instead, look up the swap rate for the pair before you decide to hold overnight, and multiply it by the number of nights you expect to keep the position open. If the swap eats a large share of the move you expect, a shorter hold or a smaller size may suit you better.Check yourself
You hold 0.20 lots of EUR/USD for five nights. The swap is 5 units of the quote currency per night. What is the total swap cost?
5 units x 5 nights = 25 units of the quote currency. If the KES rate is 130, that is KSh 3,250.
A trade gains 30 pips on 0.10 lots. Swap costs 10 units of the quote currency. What is the net result before conversion?
30 pips x 1 unit per pip = 30 units. 30 minus 10 = 20 units of the quote currency.