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 Swap is a forex trading term and it means a real-time purchase and sale of the same amount of a selected currency for two different dates for the sale and purchase of another selected currency. Forex swap is in a way a borrowing mechanism. You basically borrow one currency while lending another for a selected period of time. In other words swap is interest rates for the currency pairs you sell or buy. Depending on the pair, you may either earn or pay swap interests.   Forex swap means that you can buy/sell a base currency today and sell/buy that currency sometime in the future. For example, let's say you bought fixed amount of Euro for Dollars and sold those Euro 3 months afterwards for Dollars. This is defined as Euro Swap. So, how can forex swap help you profit? Consider an example:   Let's swap US Dollar and Euro. Forex trader enters a swap and buys $100,000 with exchange rate of $0.1 per euro (yeah right! It's just an example!). At the same time, another trader agrees to sell in 3 month the same $100,000 dollars to buy Euros at the exchange rate of $0.09. During this trade the trader makes up to 50,000 euro profit because the value of dollar changed.   In other words, forex swap is when the trader and the broker trade one currency for another at an agreed rate and then convert those selected currencies back at a selected date in the future, at the previously agreed exchange rate. The common forex swap involves the combination of a spot transaction and a forward transaction.   We have already learned that nothing comes cheap and of course there is a cost for forex swap. It is set by the interest rate difference of two selected currencies. The interest rate which you can earn during the swap period is used by the broker to calculate the price of the swap.   The actual calculation of swap cost involves the rate and the adjustment of the interest rate difference between the selected currencies for the amount of swap period. This gives the forex broker both borrowing and lending rates. This doesn't end here. The next step is to the swap points which are either added or subtracted from the price.   Currency swap deals with the exchange of interest in one currency for the same interest in another currency. It is referred to as a foreign exchange transaction.   Interest rate swap is an agreement where one stream of interest payments is exchanged for another. In other words, it is the exchange of one set of cash for another based on the interest rate conditions. Interest rate swap is used to manage the exposure to instability in interest rates or to get lower margin interest rates.


  What happens if you aren't interested in swap? Most forex brokers provide both swap and swapfree accounts. The Swap-free accounts are designed for forex traders that do not wish to use this option or can not use swap feature due to their religious beliefs. Many forex brokers refer to swapfree accounts as "Islamic accounts".     Using a swap-free forex account allows you roll over the position over night without either gaining or losing any amount. Holding the trading deal for a longer time also assures the trader that only the exchange rate for the set period of time will affect the result of the deal.   How does swap look like? The trading positions which a forex trader leaves open after a certain hour specified by a broker (usually it is after 11:59:59 PM Hamburg time) is subject to a swap debit or credit. Below are examples of how the swap rates might look like.   Currency Pair: EURUSD Long: -0.53 pips Short: -1.52 pips Currency Pair: EURGBP Long: -1.30 pips Short: -1.79 pips Currency Pair: USDJPY Long: -0.47 pips Short: -1.59 pips   Don't forget about the weekends. If you roll over the position from Wednesday to Thursday, then the next value date is Monday, meaning the rollover fee indicated as an example in the above table has to be multiplied by 3. Also, it is important to realize that swap rates aren't fixed and updated daily.

Check out more forex articles, tutorials and forex brokers reviews at http://www.forexexplore.com ForexExplore Blog - http://www.forexexplore.com/blog.html

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What is Swapped During Forex Swap