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glasses_paperSWAP (swap transaction i salso called roll-over or overnight) – it is operation of leaving open position for another day for which we get or pay some interest rate).

Transactions on Forex are connected with SWAPs.

Types of SWAP transactions

The first SWAP transaction in history happened on August 1981 between IBM and International Bank for Reconstruction and Development. It was exchange of USD for CHF.

On the currency market there are few types of SWAPs and every one out of them have other specification.

To specify what kind of contract is used you have to use terms as spot and forward.

  • Spot – operation of physical delivery of the currency.
  • Forward – operation of currency exchange at earlier discussed price, which means that this price will apply in the future.
  • Standard SWAP – when earlier date of settle the deal will be at spot price, and later on forward conditions.
  • Short SWAP (one-day) – when transactions are realized on the day of spot.
  • Forward SWAP – when first part of transaction are settled on the price which was agreed on spot to get the same conditions in the future and last part is paid on spot conditions.

In our case we are not interested in physical delivery of currency, so our open position will not reach date of settlement and every single day will be adjusted for the SWAP points.

How to calculate SWAP points?

Every broker has their own table of swap points. To calculate SWAP points we have to find currency pair we will do math for and number of points according to long or short position.

We calculate it as follows:

We assume we have 2 short positions (1 lot each) on EURNZD and USDCHF.

Instrument Instrument description SWAP points (long) SWAP points (short)
EURNZD Euro to New Zealand dollar -0.99 0.90
USDCHF American dollar to Swiss franc 0.05 -0.11

EURNZD

  1. We calculate value of 1 pips for position of 1 lot.
    Transaction volume * pips
    100000 * 0.0001 = 10 NZD
  2. We calculate 1-day SWAP
    Pip value * SWAP pts/10 * NZDUSD price
    10 NZD * 0.90/10 * 0.6285(price on September 11th 2015) = 2.37 NZD

USDCHF

  1. We calculate value of 1 pips for position of 1 lot.
    Transaction volume * pips
    100000 * 0.0001 = 10 CHF
  2. We calculate 1-day SWAP
    Pip value * swap pts/10 * USDCHF price
    10 CHF * -0.11/10 * 0.9780(price on September 11th 2015) = -0.26

Normally swap is charged on midnight, but there are also different cases, it depends on the broker.

Pairs with positive swap

It is also possible to earn some money also on swap points and if we wonder to open some currency in relation to USD or EUR, it is better to open position with USD, because then we can also earn some swap points. Different brokers have different swap offers. You should consider this when you look for broker that suits you the best.

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