What is a forex swap?

What is a forex swap? Every trader who has ever left a position overnight (and there are probably most of these traders) has experienced a small amount being credited or debited in the “swap” section.

This amount is increasing every day in that case, if the position remains open and is transferred from one day to another.

It is noteworthy that gradually the value of the swap can reach very significant figures and turn even a profitable position into a loss-making one.

But there is also a reverse situation, when swaps add a significant part of the profit to a position, only because the period of holding the position was long, and the difference in rates is quite large.

But let’s not hurry and look at everything in order, although the attentive reader has already guessed that we will be talking about the difference in rates, which is actually the basis for writing off or charging swaps.

What is a swap on an exchange?

When using the term swap, it is necessary to specify which swaps are in question. Although this term is quite specific and, it would seem, should mean a very specific process (or a specific instrument), in this case, it is not, and the term “swap” has several different meanings related to the financial sphere.

In the banking sector, a credit swap is a tool by which banks and financial institutions hedge (insure) their risks, and, to put it simply, exchange money at a fixed rate for money at a floating rate, thereby leveling the impact of changes in interest rates.

A credit default swap is a fairly complex tool, but in this article, we will not talk about a credit swap at all but will consider in detail the meaning and impact of the swap that every trader sees in their MetaTrader 4 or 5 terminal if the position they opened is not closed during the day and is transferred to the next one.

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