First Steps into the Forex World: More Than Just Trading
Welcome to the world of Forex trading! For those of you new to this field, you may be excited by the potential for profit, but at the same time, you may be confused by the complex terminology and fees. As an analyst, I'd like to encourage you to understand these important fundamentals together, just like a friend would. I guarantee it's not as difficult as you might think.
Before we get to the main topic of swaps, let's lay out a little background with some terminology every trader will encounter. Let's start with the spread, or the difference between the buying and selling prices. Imagine going to a gold shop. There are different buying and selling prices. That difference is the spread. The same goes for Forex. It's the initial cost you pay when you open an order.
Next isLeverageOr tools that increase trading power, allowing us to open orders with a value higher than the real funds in the account, like borrowing power from the broker to create more profit opportunities, but we must not forget that it also comes with a higher risk. And finally, ECN or Electronic Communication Network, which is a form of broker that sends our trading orders directly to the central market, resulting in better prices and tighter spreads, but often has a separate commission fee.
Expensive Lessons: Tales from Overlooked Fees
I have a story to tell about a novice trader named Non. After studying trading for a while, he decided to enter a buy order for the EUR/USD pair because he was very confident in the direction of the chart. He held the order for a few days, and eventually the price rose to the point he had intended. He closed the order with great joy at achieving his target profit.
But his happiness was short-lived. When he checked his account balance, he found that his profit was significantly less than he had calculated. Some of the money had disappeared without any apparent reason. It was then that Mr. Nont began to feel confused and worried.
"I made a profit, but where did the money in my portfolio go? Did I get scammed?"
Nont's question is one that many new traders have encountered, and the answer is that he wasn't scammed. He simply forgot to factor in a key hidden cost: swaps, or overnight holding fees. These fees are incurred when you hold a trade overnight.
Swap in Depth: The Fee Known as 'Overnight Holding Fee'
What exactly is a swap?
A swap is the difference in interest rates between the two currencies in a currency pair you trade. When you open a Forex trade, you are essentially borrowing one currency to buy another, thus incurring interest. If you hold your trade for days past the market's closing time, known as rollover, your broker will charge your account a swap fee.
Swap rates can be either positive or negative, depending on the currency pair and the direction you trade. If you buy a currency with a higher interest rate than the currency you sell, you may receive a positive swap, or gain a small amount of money. Conversely, if you buy a currency with a lower interest rate, you will pay a negative swap, or lose money. Changes in the monetary policy of central banks directly affect interest rates and swap rates, as can be seen from:Australian Monetary Policy Forecast ReportThe inflation direction in 2025 is assessed, which directly affects the AUD.
Why do I get triple swap deductions on some days?
Another popular question is why on some days, especially Wednesdays, the swap fee is calculated three times, or what is called a Triple Swap. This is because the Forex market is closed on Saturday and Sunday, so there is no swap fee calculated on those two days. Brokers therefore combine the total amount to calculate on Wednesday in advance to compensate for the weekend. In addition, public holidays in various countries can also affect trading schedules and swap calculations. Traders should always follow the announcements from the broker, such as:Holiday Trading Schedule ChangesBrokers must inform investors in advance.
Different brokers with different swap rates
The type of broker has a direct impact onForex Fees You Need to KnowThis includes swap rates. Market maker brokers may offer attractive fixed spreads, but their swap rates can be quite low. ECN or STP brokers, which give you direct market access, often have swap rates based on interbank rates, offering greater transparency. Some brokers also offer swap-free or Islamic accounts for those who prefer not to deal with interest, which can be offset by other management fees. You can find out more about:10 Forex Brokers with Swap Free AccountsTo compare different conditions
Choosing a broker is therefore a very important step. It is not just about looking at promotions or low spreads, but also about the details of all fees, including swap rates. A reputable broker will always provide clear information about these matters, such as:Expiration date and Rollover time informationof various assets to enable traders to plan accurately
This is where platforms like TrustFinance come in handy, providing traders with a comprehensive source of information to make informed decisions. TrustFinance aggregates broker insights, including the TrustScore, which assesses their reliability, regulatory licensing, and, crucially, user reviews. This gives you a clear picture of each broker, including their swap policy, before you open an account.
Conclusion: Knowledge is the best defense in the trading arena.
Non's story is a good reminder that successful Forex trading requires comprehensive knowledge. Ignoring hidden costs like swaps can unknowingly reduce your profits or even disrupt your trading plan.
Therefore, education is the best defense for any trader. Understanding how spreads, leverage, and swaps work, as well asHow to Choose the Right Forex Broker for Your Trading StyleIt will be a solid foundation leading to sustainable trading.
Start your journey to becoming a knowledgeable trader today by researching brokers, comparing fees, and reading user reviews at TrustFinance to ensure the most secure and reliable investment decisions.
Sources
global.fxoro.com/th/trading-info/
