A swap fee, also known as a rollover fee or overnight financing fee, is a cost or credit applied to certain financial transactions that involve the rollover or extension of an open position from one trading day to the next. It is primarily associated with trading in the forex (foreign exchange) and CFD (contracts for difference) markets.
When a trader holds a position in forex or CFD trading overnight, they are effectively borrowing or lending funds to maintain that position. The swap fee is the interest rate differential between the two currencies involved in a forex trade or the underlying assets in a CFD trade.
If the interest rate of the currency or asset being purchased is higher than that of the one being sold, the trader will typically receive a credit, earning a swap fee. On the other hand, if the interest rate of the currency or asset being purchased is lower than that of the one being sold, the trader will generally be charged a fee, incurring a swap fee.
Swap fees can vary depending on the currency pairs or assets being traded, market conditions, and the policies of the broker or financial institution facilitating the trade. Traders should be aware of swap fees and consider them as a part of the overall trading costs when holding positions overnight.