What is SWAP?

Discussion in 'Forex Education' started by YouForexxx, Feb 18, 2009.

  1. YouForexxx

    YouForexxx Active Trader

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    Can anyone here explain me, what is SWAP? I just know Swap is a debit or credit paid..
     
  2. Enivid

    Enivid Administrator Staff Member

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    Swap is the overnight interest rate paid or deducted on the open positions by the Forex broker.
     
  3. WalkieTalkie

    WalkieTalkie Master Trader

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    Some brokers offer swap-free accounts. I use no-swap accounts for religious reasons.
     
    Last edited: Sep 19, 2011
  4. Sinnerman

    Sinnerman Active Trader

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    Swap arises due to the overnight interest rates for each currency being different. Since currencies are always traded in pairs, you always need to borrow one currency in order to buy another, so it follows that you have to pay interest on the loan, but you also receive interest on the currency you are holding. If the difference between what you pay and what you receive is positive, then you are eligible for a net swap credit. If the difference is negative, that is if you pay more interest than you receive, then your account will be debited the appropriate swap amount.

    Most brokers use interbank overnight rates for their base calculations, update them daily, and then skim a little off the top. Other brokers update their rates only from time to time, and others still don't bother with the idea of swap at all. You will notice a lot of brokers claiming to be swap-free in order to attract Islamic clients who are forbidden from engaging in interest-bearing deals due to religious reasons.

    There are also differences between how brokers display swap (i won't get into details here). Most brokers apply swap daily at New York close, and triple the amount on Wednesdays to make up for Saturday and Sunday when there is no trading, but there are exceptions - Oanda being a notable one.

    Hope that helps.
     
    Last edited: Feb 19, 2009
  5. wayne43

    wayne43 Active Trader

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    That is the true Oanda being a notable one. I have look at it before. Anyway that a lot of explanation. Thank you. If any other friend can give the more opinion, please write down here...i need more :)
     
  6. FXexpert

    FXexpert Master Trader

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    Great explanation sinnerman!
     
  7. pipmanager

    pipmanager Active Trader

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    in forex every positin involves holding one currency againt a "loan"taken out in another.
    Each currency has an assosiated interest rate.
    The tarder earns interest on long positions but must pay interest on the short. as i said every forex trade involves going long one and short the other.

    the difference between interest earned and paid is a swap.
    so if you go long AUDUSD, ur long ozzie, short Dollar. You gain interest on your ausssie holding and pay interest on dollar. Since aussie interest is higher you earn more thn you pay on the dollar resulting in a positive swap charge. the opposite applies if you went short on AUDUSD.

    if you have heard of the carry trade, its based on this whole interest rate diffrential. the NZDJPY is a huge carry trade attraction. why? cause jpy is low interest and kiwi is high..

    hope that helps your forexx?
     
  8. andy003

    andy003 Master Trader

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    Forex swap definition has already been given to the best of my knowledge. I don't find any further clarification is required. Swaps are mostly used by investors looking to hedge and speculation purpose.
     
  9. Pinalli

    Pinalli Master Trader

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    A trade within the Forex market (a spot trade) is a daily trade. If the position remains open after one work day, it may be charged with the relative interest rate corresponding to that currency pair.
     
  10. FXexpert

    FXexpert Master Trader

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    Do all brokers charge that interest rate or is it just some ??
     
  11. Enivid

    Enivid Administrator Staff Member

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    Some brokers (like Marketiva) don't charge or pay any swap.
     
  12. Pinalli

    Pinalli Master Trader

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    Yea... Even Finexo doesnt support Swapping.
     
  13. anna575

    anna575 Active Trader

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    Hello

    Well, Swap is an agreement between two people exchanging money in the future. It's known as Virtual memory. It is very useful technique which helps us in many ways. Great information. I am impressed.:)
     
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