‘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.
Our Top Trading Strategies with No-Swap Accounts
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.
Modern swap-free brokers are becoming hard to beat because of:
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
