What does swap exactly mean in forex

A type of foreign exchange swap consisting of two parts, completed at the same time. One part is a foreign exchange spot trade, and the other is a foreign exchange forward transaction. Forex swaps are most often used by investors for either hedging or speculation purposes. Reproduction of all or part of What does swap exactly mean in forex glossary, in any format, without the written consent of WebFinance, Inc.

is prohibited.Disclaimer and Copyright. Not to be confused with Currency swap. How a Forex Swap Transaction WorksIn the first leg of a forex swap transaction, a particular quantity of a currency is bought or sold versus another currency at an agreed upon rate on an initial date. Interest payments are exchanged at fixed dates through the life of the contract.

If there is a full exchange of principal when the deal is initiated, the exchange is reversed at the maturity date. Usually, the principal does not change hands. Each cash flow comprises one leg of the swap. One cash flow is generally fixed, while the other is variable, that is, based on a a benchmark interest rate, floating currency exchange rate or index price.The most common kind of swap is an interest rate swap.

Swaps do not trade on exchanges, and retail investors do not generally engage in swaps. Rather, swaps are over-the-counter contracts The most hard to understand is the swap in the forex margin trading. It is characteristic in the forex margin trading that the carrying position is automatically rolled over using the forex swap. Let us explain what What does swap exactly mean in forex swap is, which makes you able to carry your position day after day.

Rolling over. In the interbank market, the spot forex makes it a rule to make a process to settle two business days after the trade date, but the forex margin trading has no need to pay or receive the full amount of the contract values. The forex margin trading system allows to set off the profit or loss within the margin account. If the position is closed clearly in a day, the relevant profit or loss is forced to net to the account balance.

Needless to say, you can carry your position to the following day. To start viewing threads,select the forum that you want to visit from the selection below. Read about members in the Introduce Yourself forum, or make your way to Newbie Island. I am unsure what Commission is. Is it the From ForexRealm.comSwap - The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward.

In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.Hope that helps,andersenws. A swap rate, in plain english, is just interest paid or charged to the trader from the result of an overnight position. At 5:00 EST (I believe) swaps are calculated. For example, if a currency pair has a positive swap value, you are earning interest by holding that position each day.

If the swap value is negative, you are being charged that much for holding that position. This is based on the difference in interest between the tw.

What does swap exactly mean in forex

What does swap exactly mean in forex