Swap rates for CFD trading

Some months ago I had a little surprise while trading. I had not looked at swap rates for some months since it does not usually affect my trading too much.

I can bare 10% annual financing rates depending on the assets because when there is volatility a high swap rate is not that important.

However, things change when swap rates are 20 or 50%.

CFD SWAP rates

Before continuing, I should say what swap rates are.

Swap rates are the interest we pay for holding our trades more overnight. It is in some way the interest rate the broker charges us for lending us money.

Normally, when you choose a broker and are going to do some sort of swing trading you should look for swap or financing costs.

We will be surprised by how expensive some brokers are.

There are brokers that even pay you positive swap for some instruments.

This problem does not exist for day traders, who will only concentrate on spread, slippage and trading conditions.

Forex SWAP rates

The markets more affected by swap rates are CFDs and Forex. If we are going to trade stocks, commodities, currencies and use leverage we will have to pay swap points.

In futures you “pay” the roll-over (when you have to change contracts for different expiration).

Like I already said, some day I had a little surprise while trading. I was holding a CFD soy short bet when soybeans had their 2014 bear market.

My surprise was when I had a look at the interest charges of the instrument. I noticed they were very expensive and when I looked at the swap rate of the particular asset I found out it was 50% annually.

Fortunately, I was short and the market had already fallen 20%, so I had a nice profit.


However, I did not feel comfortable paying that sort of swap costs and I got out. Normally, I would keep my position and let the market run using trailing stops.

The broker I am talking about is Oanda.com. Probably, the best broker for commodities CFDs out there.

Despite their temporary high swap for soybeans (which was afterwards reduced to more normal levels), the conditions for the rest of commodities, currencies and indexes (gold, oil, corn, wheat, copper, sugar, et cetera) are usually quite good.

From then on I had to start looking at the swap rates from time to time in every broker I have. I will try not to do swing trading when swap rates are too high.

As for the rest of CFDs brokers, the offer of commodities CFDs is not very good in most cases. Normally, the spreads are quite high.

Obviously, if we happen to have a big account, like hundreds of thousands of dollars or millions, the best way to trade is using futures contracts.


Thanks for reading and sharing.