A Positive Swap Over Four Weeks: How Much Carry Do You Really Earn?

[Fairman]

A Positive Swap Over Four Weeks: How Much Carry Do You Really Earn?

Scenario: a trader holds a short position of 0.50 lots in a pair with a positive short swap of 2.10 dollars per standard lot per night, for four weeks.

Work it out. Each calendar week contains 7 rollover units: five weekday nights, with Wednesday counting triple, which equals 5 plus 2 extra. Over four weeks, that is 28 units.

Swap per standard lot: 28 times 2.10 is 58.80 dollars. At 0.50 lots: 29.40 dollars.

On a 5,000-dollar account, that is 0.59 percent in four weeks. Meaningful, but small compared with the risk. A 30-pip adverse move on 0.50 lots costs 150 dollars, five times the entire carry income.

That ratio is the central point of carry trades. The carry pays slowly, and a price move can erase it quickly. The expected income looks attractive on an annual basis, about 7.6 percent in this example, but it comes with the volatility of the pair.

Also consider the broker's markup. The theoretical interest differential might suggest 3.50 dollars per lot per night, but the broker credits 2.10. The difference of 1.40 dollars is the broker's share.

Compare the swap value with the typical daily range. If the pair moves 80 pips a day on average, the carry of a few cents per pip is a rounding error against the price risk.

Takeaway: treat carry as a modest bonus, never as the reason for a trade.

Practical step: compare the daily swap of a pair on your platform with its average daily range in dollars per lot.

[FXS HongKong Scalper]

Correct, and the comparison with the risk is the key point. A 30 pip adverse move at 0.50 lots is 150 dollars, which is roughly twenty weeks of that carry gone in one afternoon.

Also worth checking how the broker sets the positive swap. Many brokers apply a markup to both sides, so the positive side ends up much smaller than the interest differential would suggest, and it can change from week to week when rates move.

[Fairman]

The ratio of carry to risk is the central lesson. Four weeks of positive swap earns 29.40 dollars, while a 30 pip adverse move costs 150 dollars. The pair only needs to move a small fraction of its normal range against the position to wipe out a month of carry. Annualised, 7.6 percent sounds attractive, but it comes with the full volatility of the pair, which for many carry pairs is 8 to 12 percent a year. The carry offers a modest advantage over time, but price movement will dominate the result in almost every individual month.

[Fairman]

The broker markup point is worth quantifying. If the theoretical carry is 3.50 dollars per lot per night and the broker credits 2.10, the broker keeps 40 percent of the carry on this side. Annually, that's about 511 dollars per standard lot. On the other side, a trader holding the opposite position would typically pay more than the theoretical cost. Comparing swap rates across brokers for the same pair can reveal large differences, so a trader planning to hold carry positions for weeks or months should treat the swap rate as a key factor in choosing a broker.

[Fairman]

Wednesday's triple swap applies to positive carry too, as the count shows. A position held through Wednesday night earns three units instead of one. Some traders time carry entries to capture the Wednesday rollover, but that adds only a small amount, and the price risk of holding through the night is the same as any other. Holidays can shift the triple day for some pairs, and some brokers apply triple swap on a different day for certain instruments, especially metals and indices. Checking the broker's swap calendar avoids surprises, especially around year end holidays.

[Fairman]

Treating carry as a modest bonus, never as the reason for a trade, is sound advice. A trade should stand on its own merits, with the swap as a tiebreaker between otherwise equal setups. If two pairs offer similar setups and one has positive carry in the trade direction, choosing that one adds a small edge for longer holds. Has anyone here held a positive carry position for several months? I'd be interested in how the total swap earned compared with the price movement over that period, and whether the carry made a noticeable difference to the outcome.