Swing and position trading
What you learn in 3 minutesSwing and position trading means holding a position for days or weeks instead of minutes. The cost of that decision moves from the spread you pay on entry to the swap charged for each night you keep the position open. On AUD/USD around 0.6640, a four-night hold can turn a small gain into a smaller one, and the risk shifts from one session's noise to overnight gaps.
Four nights on AUD/USD: where A$6.40 of swap goes
| Step | Amount | Note |
|---|---|---|
| Position size | 0.10 standard lots | One-tenth of a standard lot on AUD/USD |
| Entry price | 0.6640 | The AUD/USD rate used for this example |
| Exit price | 0.6660 | A 20-pip move in favour of the position |
| Gross pip value | A$1.00 per pip | One pip on one standard lot is 10 units of the quote currency; on 0.10 lots that is 1 unit, converted at 0.6640 to about A$1.00 |
| Gross profit | A$20.00 | 20 pips x A$1.00 per pip |
| Swap per night | A$1.60 | A hypothetical charge for holding 0.10 lots overnight; the actual rate varies between brokers |
| Swap for four nights | A$6.40 | 4 x A$1.60 |
| Net profit before other costs | A$13.60 | A$20.00 gross profit minus A$6.40 swap |
The broker may round the swap, add a markup to it, or charge a triple swap on one weekday. The spread on entry and exit is separate and also varies between brokers.
The mistake people make here
Many new readers check only the spread before entering a swing trade and forget the swap that is charged every night. They then hold for a week and find that the overnight charges have taken a large part of the gain. Before entering, look up the swap rate for the instrument and multiply it by the number of nights you expect to hold. If the expected move is small compared with the total swap, the trade may not be worth placing.Check yourself
You hold 0.20 standard lots of AUD/USD for three nights. The swap is A$1.60 per night per 0.10 lots. What is the total swap cost?
A$1.60 x 2 (for 0.20 lots) x 3 nights = A$9.60.
A position gains 15 pips on 0.10 standard lots of AUD/USD. The pip value is A$1.00. Swap is A$1.60 per night for two nights. What is the net result before other costs?
Gross profit = 15 x A$1.00 = A$15.00. Swap = 2 x A$1.60 = A$3.20. Net = A$15.00 - A$3.20 = A$11.80.