In the modern era, online trading is open and available to anyone who is interested. It is not exclusive to any particular profession, country, or geographic region. To access the markets, traders must open a live account and deposit funds—but it’s important to understand that CFD (contracts for difference) trading involves substantial risks and may not be suitable for all investors.  

Although day trading does not have any restrictions or limitations in this regard, some religious groups may face various restrictions from trading the markets due to their beliefs. This is where swap-free accounts, such as those available on some trading platforms like Vantage’s live trading account, may be useful for traders with specific requirements.  

Keep reading to find out what a swap-free account is, how it works, and if it’s the right one for your unique trading needs.  

Key Points

• Swap-free trading accounts, are designed for traders who cannot engage in swaps or interest-related transactions due to religious beliefs, offering an alternative with administration fees instead of overnight interest charges.
• Instead of overnight interest charges, swap-free accounts apply administration fees as an alternative
• In trading, a swap is the interest paid or received for holding a position overnight, calculated from the interest rate difference between the traded currencies.

What Does “Swap-Free” Mean?

A swap is the interest charged or earned for holding a trading position overnight. The swap amount can be negative or positive based on the interest rate differential between the two currencies in the pair you’re trading.  

However, because interest-based fees may not align with all traders’ financial practices or beliefs, many brokers offer swap-free account options—like Vantage.  

What Is a Swap-Free Account?

A swap-free account is a type of trading account that does not incur or generate swap fees—the interest charges typically applied when a position is held overnight. Some brokers, including Vantage, offer swap-free account options for eligible clients.  

Meanwhile, in standard trading accounts, brokers apply a ‘swap’ (also known as rollover interest) based on the interest rate differential between the two currencies in a currency pair.  

Swap-free accounts are particularly suitable for traders whose beliefs prohibit interest-based transactions, especially Muslim traders who follow Islamic finance principles. According to Islamic law, earning or paying interest (or riba) is forbidden. However, the exchange of currencies is allowed, according to the teachings of Prophet Mohammed.  

Swap-free trading accounts, often called Islamic trading accounts, were created to support traders who wish to participate in the markets while complying with their religious beliefs. While these accounts are primarily used by Muslim traders, they are also available to non-Muslim traders who may face other restrictions or simply prefer an interest-free trading model.  

It’s worth noting that while many believe swap-free accounts align with Islamic principles, the final decision often depends on personal interpretation and guidance from a qualified religious authority.  

How to Calculate Swap

Online brokers usually pay or charge differential interest of currency pairs if positions are carried over to the next day. The interest is generated from fluctuations in exchange rates that occur overnight while the financial markets are closed.  

At the end of a trading day, you have the option to maintain your position overnight. This will generate interest, which brokers will either add (pay) or deduct (charge) to the client’s account. This is standard practice in some markets, including forex trading and gold trading. 

Swap (Rollover) Interest Formula: 

Swap = (Trade Size x (Interest Rate of Base Currency – Interest Rate of Quote Currency) x 1/365) 

Example Calculation: 

Let’s say you are trading EUR/USD with a trade size of 100,000 units (1 lot) and the interest rates are: 

• EUR interest rate: 3% 

• USD interest rate: 5% 

Using the formula: 

Swap = (100,000 x (3% – 5%) x 1/365) 

= (100,000 x –2% x 0.00274) 

= -5.48 

This means you would pay $5.48 per night to hold this position. If the interest rate differential were positive, you would earn instead. 

What Happens When You Leave Your Position Overnight?

It’s worth noting that swap fees are a crucial consideration when holding positions in forex trading, in addition to interest rate differentials. When you hold positions overnight, you may incur swap fees, which are calculated based on the interest rates of the currencies you are trading. 

If the currency you are buying has a higher interest rate compared to the currency you are selling, you earn interest which your broker will add to your account. However, if the currency you are selling has a higher interest rate than the currency you are buying, then your broker will deduct the differential interest from your account. 

It is important to note that interest can either be negative or positive. Differential interest is the difference between a currency pair’s interest rates. The rollover amount is the amount that will be added or deducted from your account. 

Keep in mind that this can be a little as a few dollars a night or as much as hundreds or thousands of dollars. 

Start Trading with a Swap-Free Account  

Swap-free accounts (or Islamic accounts) are structured to eliminate overnight interest-based charges. Instead, brokers may apply alternative administrative fees to cover operational costs, depending on the account terms.   

Instead, these accounts operate solely through standard foreign exchange trading, without overnight swap fees. This makes them a suitable option not only for Muslim traders adhering to Sharia law, but also for anyone seeking an interest-free trading environment.  

For example, Vantage offers a swap-free account option that may suit certain trading preferences. Swap-free accounts are subject to eligibility criteria and may not be available for all products or regions. Additional terms, including time limits or administration fees, may apply. Please refer to Vantage’s official website or support for full details. 

Before starting active trading, it’s important to fully understand the risks involved with margin trading and the forex CFD market. Responsible trading begins with education and choosing the right account type for your financial goals and beliefs.  

If you’re interested in trading CFDs without swap fees, you may explore the swap-free account options available with Vantage, subject to eligibility.   

RISK WARNING: CFDs are complex financial instruments and carry a high risk of losing money rapidly due to leverage. You should ensure you fully understand the risks involved and carefully consider whether you can afford to take the high risk of losing your money before trading. 

Disclaimer: The information is provided for educational purposes only and doesn’t take into account your personal objectives, financial circumstances, or needs. It does not constitute investment advice. We encourage you to seek independent advice if necessary. The information has not been prepared in accordance with legal requirements designed to promote the independence of investment research. No representation or warranty is given as to the accuracy or completeness of any information contained within. This material may contain historical or past performance figures and should not be relied on. Furthermore estimates, forward-looking statements, and forecasts cannot be guaranteed. The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. 

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