Foreign Exchange Swap
What is It?
The foreign exchange swap is an amount of money that may show up on your Forex trading platform with some brokers. Here are the basics of the swap and how it impacts you as a trader.
What is the Swap?
When you trade with some Forex brokers, you will notice a column over on the right-hand side of the page that says "Swap." In the column, it will have an amount of money next to each trade that is either positive or negative.
Is the swap an opportunity to barter with your broker? Not really. This is the amount of money that you are either earning or paying on a transaction that is held overnight.
Even though the Forex market never closes (except on the weekends) brokers do differentiate one day from the next. If you have a trade that is left open and it is open when the next day starts, you either earn or pay interest or a premium on that trade.
At first glance, the concept of swap might be a little bit confusing. Here's the easiest way to look at it.
When you place a buy order on Forex currency pairs, such as the EUR/USD, you are essentially buying Euros and short selling Dollars. When you hold the Euros in your account over night, the broker is paying you interest on the amount that you hold.
Since you do not technically have the Dollars in your account to short sell, you have to borrow them from the broker. The broker charges you interest for borrowing the Dollars. The difference between the interest that you are paying and the interest that you are earning is the swap.
If you are a long-term trader, this can have an impact on your profitability. If you leave trades open for several days at a time, the swap can become a very large number. When you are determining when to close out a trade, you will need to look at the swap to make sure that you have enough profit to meet your goals.
In some cases, the swap could turn a "winning" trade into a loser in real money. The swap is simply another variable that you will have to take into consideration when dealing with the Forex market.
Return From Foreign Exchange Swap to Forex Brokers
Return From Foreign Exchange Swap to Forex Trading