How is Forex Swap Interest Generated?

Each currency has its own buy/sell interest rate, similar to how depositing money in a bank earns interest while borrowing requires paying interest.

Forex swap interest works the same way, but it involves the exchange of interest between currency pairs, making it more complex than traditional bank interest calculations.

Buying a currency is equivalent to depositing that currency with the forex platform, while selling a currency means borrowing it from the platform, thus incurring interest.

For any currency pair traded, the bought currency earns interest, and the sold currency pays interest. The difference between these two interest rates is the daily swap interest.

How Does Forex Swap Interest Affect Trading Costs?

Each currency has its own interest rate: If the bought currency's rate is higher than the sold currency's, forex traders earn swap interest ("positive swap"). However, if the bought currency's rate is lower, traders must pay swap interest ("negative swap").

Therefore, swap interest can either increase a forex trader's costs or add to their profits.