Forex swaps

Forex swap – is the retention or accrued amount settled in the process of overnight rollover of a trading position. Forex swaps are measured in pips and depend on direction of opened position and on the difference in the interest rates of Central Banks of states, which currencies constitute currency pair.

Settlement of Forex swaps take place in the last minutes of a trading day as per time of server (from 11:59 p.m to 00:00). Also there is a rule settling triple swaps for rollover from Wednesday to Thursday night, whereas swaps incurred from Friday to Monday are taken as for one time. If rollover of a position takes place during holidays, when the market is closed, swaps are respectively computed for the number of holidays falling to business days.

Essentially, Forex swap also called rollover or overnight is simultaneous conclusion of two opposite transactions with different dates. In simpler words, while transaction is made, conditionally the opposite transaction is concluded with the purpose of making provision for a trading transaction, but since the date of closing is unknown, re-opening of trade takes place on the next day. Upon that, credit and deposit funds are transferred with an account of accrual/ deducting of swap. Accrual or deducting itself (positive or negative swap) depends on the difference between depositing and crediting interest rates. If deposit rate exceeds credit, then swap is credited to trading account. In the opposite situation swap is debited from trading account. Thus, rate and cost of swap is determined, when transaction is concluded and its resettlement takes place in the moment of rollover. Swap fee provides trader with a guarantee of further execution of a trade if there is a need to transfer it to the next day. However, accounts without swaps are offered as well, upon that, broker company incurs a certain, earlier agreed, commission. This commission is taken on a permanent basis without regard of trading volume and amount.

There are three kinds of swaps on the Forex market:

Standard swaps (calculated by spot) – the nearest valuation date is the spot, when payment for transaction is immediately made (as a rule, within two days). A remote date is settled on the terms of forward contract, when price, currency rate and other terms are fixed in the moment of conclusion of transaction and valid till a certain date in the future.

Forward swaps – both dates of transactions are settled in the terms of forward contract.

Short dated swaps (settled prior to spot) – under this case, both dates of transactions constituting Swap transaction, fall into dates before swap. 

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