Funding (or Swap) is a fee associated with margin trading, where traders borrow funds to open leveraged positions. When you trade on margin, you are essentially borrowing money from the broker to increase your position size beyond your account balance. The funding or swap fee compensates the broker or liquidity provider for this borrowing, akin to paying interest on a loan.
Funding/Swap Types
The Swap Type determines how the overnight funding (swap) cost or income is calculated for a leveraged position. The two common methods are PIPS and PERCENTS, and they differ in how they express and compute the funding charges.
In the Tradeway, we support both calculation methods, which're applied based on the instrument's asset class.
Asset Class | Funding/Swap Calculation |
Stocks | PERCENTS |
Indices | PIPS |
Commodities | PIPS |
Forex | PIPS |
Cryptocurrencies | PERCENTS |
Swap Type: PERCENTS
The funding cost is expressed as a percentage of the notional value of the position (the total value of the trade).
Swap Cost = Notional Value × Funding Rate (%) × (Days Held/360)
Notional Value: The total value of the position.
Funding Rate (%): Annualized percentage rate for buy/sell positions.
Days Held: Number of days the position is held (1 day for standard overnight swaps).
360-Day Basis: Standard convention for annualized rates in financial markets.
PERCENTS Example
Funding Sell: -3% annually
Notional Value: $100,000 (e.g. 1000 shares worth $100 each)
Days Held: 1
Swap Cost = 100,000 x (-0.03) x (1/360) = -8.33
You would pay 8.33 USDT to hold the position overnight.
Swap Type: PIPS
The funding cost is expressed in pips, the smallest price increment of the instrument.
Swap Cost = Position Size (in lots) × Pip Value × Funding Rate (in pips)
Position Size: The number of units or lots being traded.
Pip Value: The monetary value of a one-pip price movement for a given position size.
Funding Rate (Pips): The cost (or income) for holding a position overnight, expressed in pips.
PIPS Example
Position Size: 1 standard lot (100,000 units)
Pip Value: $10 (for a forex pair like EUR/USD)
Funding Buy: -2.5 pips
Swap Cost = 1 x 10 x (-2.5) = -25
You would pay 25 USDT to hold the position overnight.