Swap rates, or rollover rates, are a fundamental part of trading, especially in forex and CFDs. They are fees or credits that traders pay or receive for holding positions overnight, based on the interest rate differential between two currencies. Brokers usually calculate swap rates based on market conditions, but a concerning practice arises when a broker modifies the swap rate on holidays. This means that the broker may increase or change the swap rate, often during periods when liquidity is lower, such as during public holidays, affecting your positions without prior warning. Recognising this practice is crucial for managing your trading costs and ensuring that your trades are not unexpectedly impacted during such times.

Why Would a Broker Modify the Swap Rate on Holidays?

A legitimate broker typically adjusts swap rates based on the market’s interest rate differentials, ensuring that traders are charged fairly. However, when a broker modifies the swap rate on holidays, it usually happens for the following reasons:

• Low market liquidity: During holidays, market activity tends to decrease, leading to higher volatility and potentially wider spreads. Brokers might modify the swap rates to cover these changes in market liquidity or risk.
• Increased cost for the broker: Brokers may increase swap rates during holidays to compensate for the increased risk or lower liquidity they face, passing those costs onto traders.
• Hidden fees or profits for the broker: Some brokers use this tactic to introduce hidden fees, taking advantage of traders who might not be fully aware of the change in swap rates during holidays.
• Market inefficiencies: Brokers may claim that modified swap rates are necessary to adjust for market inefficiencies caused by the lack of liquidity on certain holidays, such as bank holidays or extended market closures.
• To discourage holding positions overnight: Brokers may use higher swap rates as a deterrent for traders to hold positions overnight during holidays, potentially to reduce their exposure to long-term trades.

While swap rates may naturally fluctuate due to market conditions, any arbitrary or unexplained changes without prior notification can undermine the trust and transparency of the broker.

The Risks of Modifying the Swap Rate on Holidays

Unexpected increase in trading costs:
If the broker increases swap rates during holidays, you may end up paying more to hold positions overnight, affecting your profitability.

Higher costs during lower liquidity periods:
During market holidays, liquidity is generally lower, which can cause the market to become more volatile. If swap rates are higher during these times, it can increase your overall trading costs significantly.

Loss of trust in the broker:
When a broker modifies swap rates without clear communication, it can create doubt about the fairness of their pricing model, leading to a loss of trust among traders.

Inability to manage risk effectively:
If you are unaware that the swap rates have changed, you may be caught off guard, especially if you hold positions overnight for several days during a holiday period.

Impact on long-term trading strategies:
Traders who rely on holding positions overnight or over extended periods may find that higher swap rates during holidays eat into their profits or increase their costs, making it difficult to maintain their strategy.

Signs That a Broker Is Modifying Swap Rates on Holidays Unfairly

Swap rates spike significantly during holidays:
You notice a sharp increase in swap rates around holiday periods, without any prior notice or clear justification from the broker.

No clear explanation for the changes:
When you contact customer support, the broker provides vague or evasive answers about why the swap rate was changed during holidays, or fails to explain the rationale for the increase.

Changes to swap rates not listed in the broker’s terms:
The broker fails to update their terms and conditions, or doesn’t provide you with any communication about how the swap rates will be adjusted during holiday periods.

Increased swap rates on specific positions or pairs:
Certain positions or currency pairs may experience disproportionately higher swap rates, often without clear market reasons or explanations for why those specific instruments have been affected.

No option to cancel or override the higher swap rate:
Once the holiday period arrives, you realize that you cannot cancel or adjust positions to avoid the higher swap rate, leaving you stuck with the increased costs.

What to Do If Your Broker Modifies Swap Rates on Holidays

Request a clear explanation from the broker:
Ask for a detailed explanation regarding the changes in swap rates during holidays. Request specific information on why the rates were adjusted and how they are calculated during periods of lower market liquidity.

Review the broker’s terms and conditions:
Ensure that the broker’s terms of service outline swap rate changes and the conditions under which they may be modified. If they haven’t disclosed this in their terms, challenge the broker on the lack of transparency.

Monitor your trades closely around holidays:
Be proactive in monitoring your positions and swap rates during holiday periods. This will help you avoid surprises and give you time to adjust your positions or close them if necessary.

Submit a formal complaint:
If you feel that the broker is unfairly modifying the swap rates or not providing adequate transparency, submit a formal complaint through their official complaint process.

Report to the regulator:
If your broker is regulated, such as Intertrader, AvaTrade, TiBiGlobe, Vantage, or Markets.com, escalate the issue to the appropriate financial authority. Provide evidence of any unfair modifications of swap rates and request an investigation into the broker’s practices.

Withdraw funds if necessary:
If the broker is unwilling to provide a satisfactory explanation or restore fairness to their swap rates, consider withdrawing your funds and moving to a broker that operates with full transparency and fairness.

Warn other traders:
Share your experience on independent review platforms, trading forums, or social media to inform other traders about brokers who use swap rate modifications unfairly.

How to Avoid Brokers That Modify Swap Rates Unfairly

Choose brokers with transparent swap rate policies:
Select brokers who provide clear and consistent information about how swap rates are calculated and what factors influence changes in the rates, including during holiday periods.

Look for brokers regulated by top-tier authorities:
Regulated brokers are required to offer clear and fair pricing policies, including swap rates, ensuring transparency in how fees are applied to your trades.

Test the broker’s platform and swap rate consistency:
Before committing to a broker, test the platform using a demo account and check how swap rates are applied during both normal and holiday periods to ensure consistency.

Ensure access to customer support for explanations:
Choose brokers with responsive customer support who can provide clear explanations and help you resolve any issues regarding swap rate adjustments.

Read reviews and feedback from other traders:
Check reviews and feedback from other traders, particularly those who have experience with the broker’s swap rates and trading conditions during holidays.

Conclusion

When a broker modifies swap rates on holidays, it can significantly impact your trading costs, especially during periods of lower liquidity and higher market volatility. While swap rates are inherently variable, any unexpected increase or lack of transparency can lead to increased costs, missed profits, and a loss of trust in the broker’s practices.

Learn how to protect your trading capital, manage swap rate risks effectively, and ensure a seamless trading experience by joining our Trading Courses. Stay informed, stay empowered, and make sure your trading decisions are never unfairly impacted by hidden broker practices.