Spreads & Swaps
Mastering Spreads and Swaps: A Guide for Successful Trading
Spreads and swaps are key components of trading costs. The spread is the difference between the bid (sell) and ask (buy) prices, representing the immediate cost of executing a trade. Swaps, on the other hand, are the interest paid or earned for holding a position overnight, influenced by the overnight lending rate. Both factors affect your overall trading expenses and are calculated daily.
What are Spreads?
When you begin trading, you’ll encounter two key prices: the ‘bid’ (or ‘sell’) price and the ‘ask’ (or ‘buy’) price. The bid price is the amount you will receive when selling the base currency, while the ask price is what you will pay to buy the base currency. The difference between these two prices is known as the spread.
The spread represents the cost of executing a trade. It’s essentially the price difference between the bid and ask, and it’s one of the main ways brokers earn revenue. At our brokerage, we focus on offering tight spreads to minimize your costs, so you get the best deal possible when trading.
What are Swaps?
A swap is the interest paid or earned for holding a position overnight, based on the overnight lending rate of the currency pair. Swaps are applied daily, with rollover charges for positions held past 22:00 (UK Time), marking the end of the trading day. The interest paid or earned depends on the currency pair’s overnight rate and is realized when the position is closed.
Swaps are applied once daily, with no swap charges on Saturdays and Sundays due to global bank closures. However, on Wednesday, a triple swap is applied to account for the weekend. For certain instruments, such as AUS200, STOXX50, HK50, JP225, DE30, ESP35, UK100, DJ, ND, S&P500, the triple swap is applied on Fridays. For currency pairs like USDTRY, USDCAD & USDRUB, the triple swap is applied on Thursdays.
