What Is the Main Factor in the Best Brokers for Long Term Trading?
When you are looking for the best forex brokers for scalping you know what you are looking for. You want a broker with low spread, fast execution, and etc but what you should consider when you want to look for the best forex brokers for long term trading?
Well, spreads and regulation are always important and you can take them into account while choosing a broker suitable for long term trading but there is a particular factor for this type of trading that can have an impact on your profits and is more important than spread.
The impactful factor on our profits in trading long term is swap.
What Is Swap?
Swap is the interest paid at the time of rollover. When you hold a Position overnight in a Margin FX Contract or CFD, they will be rolled to the next Business Day, which may result in you paying a Swap Charge or earning a Swap Benefit.
As you can see, you don’t pay or earn swap if you are a day trader or more specifically if you don’t hold to your position for the next day.
That’s why it’s just important if you are a long term trader, not a scalper or day trader.
The reason that you earn or pay swap is that every central bank around the world has an interest rate so when you buy or sell a currency pair in a way that you hold it more than one day, your trade or exchange is exposed to this interest rate.
For example, the Federal Reserve sets an interest rate of 1.70% for USD and the bank of Japan has an interest rate of 0.1%.
If I buy USDJPY, since the interest rate of USD is higher than JPY, I get a positive swap. In other words, I earn profit because technically I sell a currency with lower interest rate and buy the one with a higher rate and hold to it until the next day so I receive an interest rate for one day.
On the other hand, if I sell USDJPY, I have to pay swap or I receive a negative swap rate.
Every day that you hold your position, you receive positive or negative swap, regarding the currency pair or any other instruments you trade.
What Is Rollover and When Does it Happen?
Rollover is when the market is closed for a few minutes each day so that swap can be charged or paid to positions held at rollover.
Rollover is from 23:55 – 00:10 MT4 Server time or 5 PM EST to 5:15 PM EST every day from Monday – Friday.
This is basically the time that you see a new daily candle starts in your platform in a standard version.
The swap on Wednesdays is tripled for forex pairs because it’s the swap for three days which includes weekends and Wednesdays.
It can be an important factor if your long term trades last for a few days. Basically it means you are a swing trader rather than position trader.
Both swing trading and position trading are considered long term trading but in swing trading, you hold your trades for a shorter period of time but it still lasts for a few days.
Anyway, if you are a swing trader, as far as your TPs and SLs are probably smaller than position traders, you may want to avoid larger swaps. If so, you should know that trading on Wednesdays brings you triple swap so if there’s a negative swap you’d better consider that.
Why Is Swap Important for Long-term Trading?
Generally, when it comes to the cost of trades, the first thing that people look into is spread. Traders want to pay as fewer pips as possible especially if they are scalpers or even day traders.
However, when we are talking about the best forex brokers for long term trading, swap is more important than spread.
Imagine you are a position trader and your average traders last 10 days. The average spread for EURUSD in your broker is 0.2 pips and the commission is $7 roundturn which becomes 0.7 pips for eurusd and 0.9 pips in total (spread + commission).
Your broker has a negative swap of 0.6 pips on eurusd (-0.6 pips) as well which means for each day that you keep your trade; you have to pay 0.6 pips as swap.
Let’s say that you open one standard lot EURUSD so you have to pay $9 as spread. Your trade lasts for 10 days which means you have to pay a 10-day swap.
Since the swap for each day is 0.6 pips and your lot size is 1 standard lot ($10) and you also hold the trade for 10 days, you have to pay $60 for swap.
As you can see, although the swap is less than spread + commission at first, the main part in your cost of trade is the swap because you pay for spread and commission only once but you have to pay for the swap every day you keep the trade.
In conclusion, spread and commission are important and crucial factors in scalping or day trading but for long-term trades, swap plays the major part and can change your profit margin.
How Can I Avoid Swap?
The only way that you can avoid swap is keeping your trades open within a day however there are some ways that you can either decrease the swap cost or even benefit from that.
If you want to lessen the amount of money you have to pay as swap, you should find and choose the forex brokers suitable for long-term trading. In other words, the ones that give you more favorable swap.
There are two ways that you can do that. Either you can go through all the brokers’ websites and find the swaps they have or alternatively choose from the list of brokers that you can see here.
I’ve dug into more than 100 brokers to find the best conditions for long term trading particularly the most favorable swap rates.
Another approach is to benefit from swap. It means to choose the trades with positive swap rates.
It may seem not a good idea to always do that because it probably put a dent on your trading opportunities and you might have to lose some trades because of negative swap rates, however, you can consider that if you see a pair with a larger positive swap rate or avoid when you see a pair with a considerably big negative swap rate.
How Did I Select the Best Forex Brokers for Long Term Trading?
There are a lot of forex brokers out there but how you can figure out which brokers are the best ones for long term trading or have the best swap rates?
Do you have to go through the websites of hundreds of brokers and check their swap rates out?
Although it’s possible to do so it takes too much and is really time-consuming. First, you have to find forex brokers, some you already know and some you have to discover.
Then you have to find the swap sections and enter their swap rates into excel so that you can compare brokers’ swap rates later.
However, there’s a better way.
How Can You Find Brokers with Favorable Swap Rates?
I used the swap section of myfxbook where there are more than 100 forex brokers with their swap rates for many currency pairs including major, minor, exotic, gold, etc.
You can sort the brokers out based on swap rates both short and long and find the positive and negative swap rates, however, there are some flaws that need to be fixed if you want to have correct and reliable results.
First, not all the swap rates in the myfxbook swap table are correct so you should double-check with the websites of the forex brokers.
Most of the websites have a section that shows the swap rates but some of them don’t.
If you can’t find the swap rates on the brokers’ websites, you can find them through the platform of the brokers.
For example, in the market watch of MT4, you can right-click on the pair you want its swap rate and then select specification. You can see the swap rate on the contract specification window.
You can also do the same for other platforms like the proprietary trading platforms of brokers.
Some of forex brokers have also a calculator that calculates the swap rates of that broker so you can check their swap from there.
What Types of Swap Rates Does Forex Brokers Have?
After finding the correct swap rates, I changed the rates of some brokers because they are not all based on the same metrics.
Some brokers show their swap rates based on pips. Others are based on base currency, margin currency, or interest rate percentage.
Because I wanted to compare the brokers to find the best swap and consequently best brokers for long term trading, I unified them based on pip.
For example, a swap rate of a currency pair such as USDJPY is based on base currency; which is USD for USDJPY, and it is $3.2 so we turn it into pip so it becomes 0.32 pips.
For those swap rates that are based on percentage, you need to use the following formula in order to turn them into dollar and then into pip:
Swap rate= Interest rate (%) x Contract value / 360
Contract value is equal to daily close price multiplied by contract size
Contract size for forex pairs is:
- 1 lot= 100000
- 0.1= 10000
- 0.01= 1000
For example, a broker shows the swap rate of EURUSD for short (sell) positions as 1.2%.
The daily close price, let’s say on Monday, is 1.1104. For finding the swap rate for EURUSD we need to put this information in the above formula.
Swap rate= 1.2% *(100000*1.1104)/360≈ 1.33
And if we want it as pip, it becomes 0.13 pips approximately.
After finding the correct swap rates and integrating them into Pip, I sorted them out and selected the forex brokers with the best and most favorable swap rates for trading long term.
I also checked their regulations and eliminated the ones that are not regulated.
Although there are some unregulated brokers that seem reliable and have shown a good performance choosing from regulated brokers is safer in my opinion.
One more thing!
Swap rates changes every day so you may see different swap rates than you see in the table here, however, this difference is not pivotal in a way that changes the rank of the brokers and turns a broker with good swap into a bad one.
Best Forex Brokers for Long-term Trading (Comparison Table)
Here’s a list of top 10 Forex brokers for long term trading:
- Just2trade online
- ADS Securities
- Swissquote Bank
- IG Markets
- Go Markets
- Multibank Group
Note: All the brokers in the table below are the best forex brokers for long term trading and the above brokers are listed based on the best swap for EURUSD. For more information, read the following lines and find the broker that best suits your needs.
In our table, we put three types of swap: long, short, and average.
Since we want the best forex brokers for long term trading, we need the best swap both for long (buy) and sell (short), however, some brokers have a favorable long swap but the short swap is not good and vice versa.
For example, a broker may have a 3-pip positive long swap for eurusd which is absolutely high but it has an 8 pip negative short swap as well so the swap rate is not in your favor in general.
For finding out the total swap rates that you receive, I put the average of swap rates (long and short) in the table so you can sort the table based on that to see the brokers with the best swap rate in total.
There’s only a selection of currency pairs here which includes 4 pairs: EURUSD, GBPUSD, USDCAD, and GBPJPY. If you trade specific selections of pairs that are not included here, you can find their swap rates on the website of the following brokers.
Swap rates change every day and the following rates are just a sample that shows the brokers with the best swap rates. In other words, the swap rates change but the rankings of the forex brokers stay intact to a great extent.
Click on average swap headers to sort the brokers based on the most favorable swap rates according to the mentioned currency pairs.
|Broker||eurusd long swap||eurusd short swap||eurusd average swap||gbpusd long swap||gbpusd short swap||gbpusd average swap||gbpjpy long swap||gbpjpy short swap||gbpjpy average swap||usdcad long swap||usdcad short swap||usdcad average swap|