'Swap-free' brokers used to mean hidden fees, but that is no longer the case. If the broker has access to top-tier liquidity and market leading pricing, lack of swaps for them can result in an alluring combination for traders. This can make the company much more popular, and, in the end, profitable. That is the approach we have taken with Defcofx, and we see other brokers now following suit. This opens up new innovative strategies to traders, as well as cost-saving opportunities for those paying attention. Some of the more profitable modern strategies require no-swap accounts to be effective. We decided to discuss them today.
The industry is increasingly moving into two opposite directions: short-term scalping with programs, EAs, and long-term 'holding', for either shorts or longs, to exploit fundamental trends. We have explored the rise in EA usage already, so in this opinion piece, we talk about the other side of this story. The rise of true no-swap trading, and why offering this one feature will become a necessity in the future.
Understanding Swap Fees
Swap fees, also known as 'rollover fees', are charges incurred when a trader holds a position overnight. These fees happen due to different interest rates between two currencies in a trading pair (plus, some markup from the broker, of course). Basically everything that is not day trading or scalping will involve a swap fee at some point.
Swap fees may be positive, allowing for a carry-trade strategy, where traders (famously, even Japanese housewives) earn money from the currencies with higher interest rates. But more often than not, they are negative, resulting in a net loss to a trader. For those employing long-term strategies, these fees can accumulate, significantly impacting overall profitability.
Brokers began offering no-swap accounts in the early 2000s. They were created primarily to accommodate traders who follow Islamic finance principles, which prohibit paying any interest (Riba). Swap-free accounts were the only ones compliant with Sharia law. Over time, however, these accounts gained in popularity, and regular traders started requesting access to them as well.
No-swap accounts are not just a novelty anymore. These are becoming more and more popular, at a rapid rate. It's to the point where some brokers, like Defcofx, made all of our accounts entirely swap-free, with no additional charge to the customer.
Being swap-free is not profitable to the broker, which gets to charge one less fee. It's profitable only to the trader. And that is why some brokers slightly increase their spreads for the Islamic accounts. Some call it an 'admin fee' and apply it as an alternative to the swaps. Some provide swap-free for a week, a month or even three months but then suddenly start charging the fee. Some may even start charging 'inactivity fees', if you don't trade for a month. That is why finding brokers that have no swaps, inactivity fees, or other 'additional' fees of any kind, is quite difficult still.
Defcofx is one of true non-swap brokers — with no inactivity, deposit, or withdrawal fees, no 'admin fee', and top-tier spreads from 0.3 pips on raw accounts. Charging no swaps from traders doesn't impede us from offering leverage up to 1:2000 or providing 40% welcome bonuses. It means, of course, we earn fewer fees from each individual trader, but we attract more traders overall by offering favorable trading conditions, so it pretty much balances out in the end. That is the fee structure we encourage every other broker to try.
1. Long-Term Position Trading
This involves holding trades for extended periods, ranging from weeks to months. Traders analyze fundamental factors such as economic indicators and monetary policies to predict currency, gold, oil, or stock movements. No-swap accounts are particularly beneficial here, as they eliminate the overnight fees that would otherwise erode most profits over time.
2. Swing Trading
Swing trading focuses on capturing short- to medium-term gains over several days or weeks. Traders analyze market trends and technical indicators to enter and exit positions when they think an asset is oversold/overbought, or can experience a significant trend in either direction. Utilizing a no-swap account enables swing traders to hold positions overnight without worrying about accumulating swap fees, thus preserving their profit margins.
3. Close of the day trading
Some traders open positions just before the close of the day. This time is typically characterized by increased volatility as traders finalize their positions. It includes last-minute order executions, price fluctuations, and settlement adjustments. However, it is much harder to maintain profitability with close of the day trading if you hold some trades over night, and swap fees are involved.
At Defcofx we welcome clients from all around the world, without any restrictions, and some of them trade near the time of New York session closure. We have NY4 and LD5 data centers in New York and London specifically designed to accommodate traders from distant countries with high ping. However, with high swap fees, this setup may have limited impact. Having zero swaps allows us to make it fair to all traders, regardless of trading style.
No-Swap Brokers Are the Future of the Industry
There are at least four reasons we see it this way. Defcofx is committed to having no swaps levied at its traders, and we see it as a necessity in the modern trading environment. Not to us, but to any traders thinking about choosing a broker, or trying out forex trading for the very first time.
1. Ease of use
Traders are increasingly impatient; the modern world offers plenty of distractions. Calculating swap fees is tedious and laborious for both regular retail trading, and for programming robots, as it is an extra variable that needs to be accounted for. Removing swaps simplifies the process, and, for some, tremendously helps the ease of use.
2. Cost-efficiency
By eliminating swap fees, no-swap brokers can offer a cost-effective solution for traders, especially those employing strategies that require holding positions overnight or longer. This reduction in trading costs enhances overall profitability and attracts a broader range of traders.
3. Flexibility
No-swap accounts cater to traders who, due to religious beliefs or personal preferences, seek to avoid interest-based transactions. This inclusivity drastically broadens the broker's client base and promotes a more diverse trading community.
4. Alignment with long-term trading trends
As more traders adopt long-term strategies (positional trading, or even so-called 'hodling'), the demand for no-swap accounts is expected to rise. Brokers offering such accounts, we believe, position themselves at the forefront of this trend, meeting the evolving needs of the trading community.
The advent of true no-swap brokers marks a significant shift in the industry — showing traders they can get access to enhanced strategies and cost-saving opportunities for no extra price. By accommodating long-term positions and diverse trading approaches without the burden of any fees, no-swap brokers are not only able to meet current market demands, but are also shaping the future trajectory of the forex market as a whole.
Disclaimer: Article submitted by Defcofx broker team
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