Why did my broker charge me so much in swaps?

The short answer

A swap charge is two different costs wearing one name. The first is the interest-rate differential: holding one currency against another overnight is a funding position, and the gap between the two currencies’ short-term rates — applied over the position’s value dates, not its clock time — is a cost or a credit that would exist at any broker on earth. The second is the residual: the funding spread, markup and rounding stacked on top, which is the only part your broker actually controls.

A charge that shocked you can be mostly the first part on a wide-differential pair, or mostly the second on a narrow one — and until the two are separated, the size of the charge tells you nothing about whether you were treated fairly. Separating them takes your statement, the two value dates, and arithmetic this article walks through.

Value dates, tom-next, and where the week’s seven days go

The professional market prices the overnight extension as its own instrument — tom-next, the swap from tomorrow to the next day — and its price is driven by the interest differential between the two currencies for exactly those dates. Your retail swap rate is downstream of that price. What arrives on your statement has been passed through the broker’s liquidity arrangements, had a spread applied, and been converted into the per-lot figure the platform displays, but the thing underneath is a dated, funded position whose cost is set by two central banks’ rate environments and the calendar.

The calendar is where most of the confusion lives. A week has seven days of financing, and a five-trading-night week has to charge all seven. For a pair settling two business days forward, the roll made on Wednesday night moves settlement from Friday to Monday — three calendar days, charged at once. That is the whole of “triple swap Wednesday”. Instruments with different settlement conventions triple on different nights, which is why the explanations published across the industry contradict one another: each describes its own most common case as if it were the rule. Nothing is refunded when you close the next morning, and nothing extra was taken across the week — the seven days were always coming, in instalments of one, one, one, three and one.

Public holidays in either currency’s country shift value dates again, which is why a swap can surprise you on a night no chart flags as special. The date arithmetic is mechanical, but it is arithmetic on a calendar you have to actually look at — the platform’s clock time is not the position’s financial time, a distinction this site meets everywhere from point-in-time data to settlement.

How to decompose your own charge

The procedure needs your statement, the pair’s two currencies’ short-term interest rates for the value dates in question, and nothing from the broker beyond what they already sent you.

Isolate one charge. Take a single night’s swap on a single position from your statement — the per-lot rate times your size, in your account currency. Note the trade date and work out the value dates the roll crossed, counting the weekend if it was the tripled night.

Compute the differential leg. For those calendar days, the differential cost is your notional in the base currency, times the gap between the two currencies’ overnight-tenor rates, times days over the year-count convention, converted at the prevailing rate into your account currency. Central-bank policy rates are published and free; they are not exactly the deposit rates a prime broker funds at, but they are close enough to size the leg — the point is magnitude, not four decimal places.

Read the residual. Subtract the differential leg from the charge. What remains is the funding spread plus the broker’s markup plus rounding — the part of the swap that is a price your broker chose. Run the same subtraction on the opposite side’s published swap rate and the residual will usually appear again, same sign, which is the asymmetry described above and the cleanest confirmation the method is working.

Compare across nights, not across forums. One night’s residual is an instance; a month of them is a distribution. A residual that is stable is a price. One that jumps around — or that grew quietly between statements — is worth a conversation with the broker, and now you arrive at it holding arithmetic instead of a feeling.

What the wrong answers get wrong

“Swaps are how brokers steal from you.” The differential leg is real and portable — it follows the position, not the venue. A broker charging you the differential plus a modest spread is selling you overnight funding, which is a service with a cost. The dishonesty, where it exists, lives in the residual’s size and its quiet growth, and the accusation that skips the decomposition cannot tell an honest venue from the other kind — which suits the other kind fine.

“The triple day is an extra charge.” It is the weekend’s financing arriving on the night whose roll crosses it. The week charges seven days whichever broker you use; only the instalment schedule varies by instrument. Closing before the tripled night does not dodge the cost — it moves your exposure to the days when the charge was smaller because it covered fewer days.

“Positive swap is a yield.” It is a differential paid to you, shaded by the same residual, in exchange for holding a currency exposure overnight. The pairs that pay best tend to pay because the market prices real risk into that differential — and the credited side of a pair is routinely thinner than the charged side, which is the residual working against you in both directions.

Where the measured version publishes

The reconciliation this article teaches by hand — every swap charge on a statement decomposed against the tom-next arithmetic for its actual value dates, the residual tracked as a distribution rather than an anecdote — is, as far as I can establish, a service nobody currently offers: the comparison sites compare published rates, not what accounts were actually charged.

It is also a natural battery for instrumentation. The Execution Cost Auditor already itemises commissions, swaps and financing as part of measuring what execution actually cost, and the per-charge reconciliation described here is the depth that line item is built to grow into. The honest reason it does not exist yet is the same one that runs through this whole site: a published residual is a claim about a venue, and a claim about a venue publishes with a registered method, a declared sample and a recomputable artifact, or it does not publish. Doing that per broker, per pair, per night is instrumentation work rather than an afternoon — which is why the interim version of this article is a procedure you run yourself, on a statement only you hold, producing numbers nobody has to take on trust. Pre-launch; no aggregate exists, and the first published residual figure will arrive with its artifact or not at all.