Overnight Financing (Swap)
Definition
Overnight financing, often called a swap, is a daily charge or credit applied to leveraged positions that are held open overnight. It reflects the cost of borrowing capital and, in some markets, interest rate differentials. These charges can significantly affect longer-held trades, making broker swap rates and policies an important comparison factor.
In Plain English
In plain terms, overnight financing is the cost of keeping a leveraged trade open beyond the trading day. Because part of your position is effectively funded by the broker, you either pay or receive interest. In most retail trading scenarios, this results in a cost rather than a credit, especially for CFDs.
How It Works
- You open a leveraged position in a product such as a CFD or FX pair.
- If the position remains open past the broker’s daily cut-off time, overnight financing applies.
- The broker calculates the financing based on position size, applicable rates, and the instrument traded.
- The charge or credit is posted to your account balance, typically once per day.
- On certain days (often midweek), multiple days of financing may be applied to account for weekends.
- Financing rates vary by asset class and by broker.
- Financing continues to accrue for as long as the position remains open.
Why This Matters for Traders
Overnight financing is often overlooked by new traders but can materially change the economics of a trade. For short-term strategies, the impact may be small. For positions held over days or weeks, financing costs can accumulate and turn an otherwise profitable trade into a loss. Understanding these costs is essential when deciding whether a strategy suits leveraged products and which broker offers more transparent pricing.
Common Misunderstandings
- Overnight financing only applies to long-term trades: even a single overnight hold triggers it.
- Financing is always a small cost: rates vary and can be substantial for certain instruments.
- All brokers charge the same swap rates: financing policies differ widely.
- No commission means no holding cost: financing can exceed spread and commission costs over time.
- Financing only applies to CFDs: FX, indices, and other leveraged products may also incur swaps.
How This Affects Broker Choice
Overnight financing is a key differentiator between brokers, particularly for traders who hold positions beyond intraday timeframes. When comparing brokers, users should assess:
• Published swap or financing rates by instrument.
• Whether rates are fixed or variable.
• How and when financing is applied, including weekend adjustments.
• Transparency of financing charges in trade history.
• Availability of alternative account types with different financing structures.
From a monetisation and comparison perspective, financing costs often surface only after users experience unexpected losses. Clear explanation here supports broker reviews and comparison pages that break down true holding costs.
Risks & Common Mistakes
• Holding leveraged positions without factoring in cumulative financing costs.
• Assuming financing will be negligible compared to price movement.
• Ignoring triple-swap days or weekend adjustments.
• Choosing brokers with unclear or poorly disclosed financing rates.
• Using leveraged products for long-term exposure without evaluating alternatives.
Risk note: overnight financing increases the cost of leveraged trading and can accelerate losses if positions move against you or remain open for extended periods.
Real-World Example
You open a £10,000 leveraged CFD position with an overnight financing rate equivalent to £5 per night.
• Holding the position for one night costs £5.
• Holding it for two weeks costs approximately £70.
If the price remains flat during this period, the accumulated financing cost alone results in a loss, even before considering spread or other fees.
What to Check Before Trading
- What are the overnight financing rates for the instruments you plan to trade?
- How are financing charges calculated and applied?
- Are there days when multiple charges apply?
- Are financing costs clearly shown in the platform and trade history?
- Do alternative account types or products reduce financing exposure?
- How do financing costs compare across brokers for the same instrument?
- Are financing terms clearly documented and easy to verify?
Related Concepts
CFDs commonly incur overnight financing when held beyond the trading day.
Leverage creates the borrowing exposure that leads to financing costs.
Margin determines the size of leveraged exposure subject to financing.
Spread is an upfront cost, while financing affects the cost of holding trades.
The longer a position is held, the greater the impact of financing costs.
Affiliate Disclosure: We may receive compensation when you click on links to brokers and products featured on this site. This compensation does not influence our rankings, reviews, or recommendations. We maintain editorial independence and provide objective comparisons. Read our full disclosure policy.
Risk Warning: This website does not provide financial, investment, or trading advice. All information is for educational purposes only. Trading and investing involve substantial risk of loss. You should carefully consider your financial situation and consult with qualified professionals before making any financial decisions.