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What is Swap in Trading?

What is Swap?

A Forex Swap/Rollover is an overnight interest earned or paid for holding a position open overnight in FX trading, and it’s calculated based on whether your open positions are long or short.

Rollover interest is applied to a trader’s trading account on each trading day at 5 p.m. Eastern Standard Time, which is 00:00 MetaTrader 4/MetaTrader 5 server time. On Wednesday, rollover is charged triple rated due to market close on Saturday and Sunday.

Swaps or currency representing roll over rates in view

Why is Swap Important?

  • Swaps are applied only when positions are kept open until the next forex trading day.

  • You receive some of the most competitive rollover/swap rates in the industry.

  • For some instruments, it is possible to charge swap interests (negative rollover charges) on both sides, both ‘long positions’ and ‘short positions’, of the trade. 

  • Our rollover rates are posted every day and available within the trading platform.

  • Each currency pair has its own swap charge and is measured on a standard size of 1.0 lots (100,000 base units).

  • Rollover rates are updated on a weekly basis the next forex trading day.

Because our roll over rates reflect some of the most competitive in the industry, this allows us to keep your rollover costs as low as possible when you pay on the rollover, and maximize your credit when you earn on the rollover.

Where to Find Swaps

You will be able to view the latest swap rates in your MetaTrader 4 and MetaTrader 5 trading terminal by following the process outlined below. 

Open MT4/MT5 >> Right Click on any instrument you want to check in the “Market Watch” section >> Left Click on “Specialization” >> A new window will open that shows the long and short swap rate for the pair selected.

How is Swap Calculated?

The formula we use for calculating the swap charge for Forex pairs is the following:

Swap (in base currency) = Swap Rate x Lots (Volume) x Number of Nights

Who uses Swaps?

Swaps are utilized by a diverse range of market participants, including banks, institutional investors, and individual traders.

Swaps in trading refers to the exchange of cash flows between parties, typically involving interest rate differentials or currency exchanges. They serve various purposes, such as managing interest rate risks, hedging positions, or speculating on future market movements.

Individual traders, including retail forex traders, may utilize swaps for speculative purposes or to hedge their positions. Speculators may enter into currency swaps to profit from anticipated exchange rate movements, while hedgers use swaps to offset the risk associated with their forex positions. For instance, a trader who holds a long-term position in a foreign currency may use a swap to lock in the exchange rate and reduce the impact of adverse currency fluctuations.

What are the types of Swaps?

There are primarily two types of swaps relevant to forex trading: interest rate swaps and currency swaps.

Interest rate swaps involve exchanging fixed and floating interest rate payments between two parties. In forex trading, interest rate swaps are commonly used to manage overnight positions. Traders who hold positions overnight may either receive or pay interest based on the interest rate differentials of the currency pairs involved.

Currency swaps, on the other hand, involve the exchange of principal and interest payments in different currencies. Retail forex traders may use currency swaps to hedge against exchange rate risks or speculate on future currency movements.

Understanding the different types of swaps is crucial for retail forex traders as they can impact the overall profitability and risk management of their trading activities.

Is there any Regulation on Swaps?

Yes, there are regulations in place regarding swaps, especially in the context of retail forex trading. Regulatory bodies, such as the Commodity Futures Trading Commission (CFTC) in the United States, oversee the trading of swaps to ensure fair practices and protect the interests of retail traders.

These regulations aim to promote transparency, reduce systemic risk, and enhance market integrity. Retail forex traders should be aware of and comply with these regulations to ensure they are trading within the legal framework. Adhering to regulatory requirements helps foster a safe and secure trading environment for retail forex participants engaging in swap transactions.

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