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The definition of SWAP transaction on the Forex market

the-definition-of-swap-transaction-on-the-forex-marketSwap is some kind of the commission, which is charged for the transfer of the opened positions over the night.

When you open a trade, you sell one currency and buy another. Since the currencies charge different interest rates, you can either collect interest (positive swap) or pay interest (negative swap). If you borrow a low-rate currency to buy a high rate currency, you should earn interest. If you do the opposite, you pay.

All the matter is that every intra-day order on the currency market is included to the Spot category of deals. According to it, the full amount delivery is fulfilled on the next day. However, there are a lot of traders, who use this opportunity on Forex and don’t close their positions in the end of the day.

Some want to get more profit in the new trading day, others leave the unprofitable trades and hope that, by the next day market will begin to move in the opposite direction, which is good for them and as a result, the losses will change to the profit. In both cases, the position, which is opened during the day, will be transferred to the next day. Such trades are closed in the end of the day and opened in the beginning of the next day automatically. This is the Swap operation.

The broker carries out a charge of the commission according to the current value of the currency pairs’ rates. In the different cases, this value can be positive, as well as negative. The positive sum is credited on the trader’s account, negative is debited. This sum is the Swap.

2 Responses

  1. […] The definition of SWAP transaction on the Forex market – The definition of SWAP transaction on the Forex market. Swap is some kind of the commission, which is charged for the transfer of the opened positions over the night. […]

  2. […] The definition of SWAP transaction on the Forex market – The definition of SWAP transaction on the Forex market. Swap is some kind of the commission, which is charged for the transfer of the opened positions over the night. […]

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