BASICS
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Your Trading Guide: How do Swaps Work?
What is swap? How do they work? Why is the swap an important factor in the financial markets?
For traders, the term means much more than the 'change'. Since many investors are wondering what a swap is, it is useful to explain it by going into a little more details. Swap is a very important point that many investors confuse.
This concept is actually the origin of the plus & minus (pros & cons) in your account. It is the overnight cost that is reflected in your account as a gain or loss according to the interest rate difference between the currency pairs you have traded. In other words, if you decide to put the high-interest one of the two currencies to the market and keep the low-interest one, it means that the overnight carrying cost of the low-interest one will be added in your account.
If you haven’t understood yet asking yourself what are we talking about, let’s explain this swap more efficiently. When you create a long position in EURUSD (currency pair), you give US dollars to the market and get euro with low interest in return. This transaction will return to the investor as a negative swap fee. On the other hand, when you sell EURUSD, you give euros to the market and get US dollars in return. You will also get a positive swap income for putting the low-interest currency on the market. So you will make profit. Swap fees will be the case for overnight transactions, which are also the transactions (or positions) that are not closed on the same day and transferred to another day. Implementation of the swap is generally based on the official interest rates announced by the Central Banks.
Wednesdays are crucial
The swap fee works overnight and the swap fees are not taken into consideration, if you open and close your position within the same day. Now, there is a rule of thumb: Forex traders should watch out for Wednesdays! Swap prices are calculated for 1 day; however, the situation is different for Wednesday. A 3-day swap fee is applied to a position opened on Wednesday and not closed until the next day, 00:00 (at the earliest). This is due to the fact that the markets are closed on the weekend and the open positions in the pairs have a 2-day value. On holidays when the markets are closed, swap continues to be the case for open positions.
Are you tired only by reading and trying to understand how swap works? No worries! In the Forex market, you also have the option of creating a swap-free forex account. This account type appeals to investors who prefer to stay away from interest. And in addition to different account options with swap, Venn Prime Securities also offers a swap-free account option!
For traders, the term means much more than the 'change'. Since many investors are wondering what a swap is, it is useful to explain it by going into a little more details. Swap is a very important point that many investors confuse.
This concept is actually the origin of the plus & minus (pros & cons) in your account. It is the overnight cost that is reflected in your account as a gain or loss according to the interest rate difference between the currency pairs you have traded. In other words, if you decide to put the high-interest one of the two currencies to the market and keep the low-interest one, it means that the overnight carrying cost of the low-interest one will be added in your account.
If you haven’t understood yet asking yourself what are we talking about, let’s explain this swap more efficiently. When you create a long position in EURUSD (currency pair), you give US dollars to the market and get euro with low interest in return. This transaction will return to the investor as a negative swap fee. On the other hand, when you sell EURUSD, you give euros to the market and get US dollars in return. You will also get a positive swap income for putting the low-interest currency on the market. So you will make profit. Swap fees will be the case for overnight transactions, which are also the transactions (or positions) that are not closed on the same day and transferred to another day. Implementation of the swap is generally based on the official interest rates announced by the Central Banks.
Wednesdays are crucial
The swap fee works overnight and the swap fees are not taken into consideration, if you open and close your position within the same day. Now, there is a rule of thumb: Forex traders should watch out for Wednesdays! Swap prices are calculated for 1 day; however, the situation is different for Wednesday. A 3-day swap fee is applied to a position opened on Wednesday and not closed until the next day, 00:00 (at the earliest). This is due to the fact that the markets are closed on the weekend and the open positions in the pairs have a 2-day value. On holidays when the markets are closed, swap continues to be the case for open positions.
Are you tired only by reading and trying to understand how swap works? No worries! In the Forex market, you also have the option of creating a swap-free forex account. This account type appeals to investors who prefer to stay away from interest. And in addition to different account options with swap, Venn Prime Securities also offers a swap-free account option!
