What is swap?

<p>A swap in forex refers to the interest that you either earn or pay for a trade that you keep open overnight. There are two types of swaps: Swap long (used for keeping long positions open overnight) and Swap short (used for keeping short positions open overnight). They are expressed in pips per lot and vary depending on the financial instrument you’re trading.</p>

<p>The term swap refers to the exchange of one financial instrument for another between two parties. The exchange takes place according to the contract's predetermined time.</p>

<p id="isPasted">A swap is a financial derivative contract between two parties who agree to exchange cash flows or financial instruments based on predetermined terms. Swaps are commonly used to manage risks, hedge against fluctuations in interest rates or exchange rates, and customize financial positions. The two main types of swaps are interest rate swaps and currency swaps.</p><ol><li style="box-sizing: border-box; --tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; --tw-rotate: 0; --tw-skew-x: 0; --tw-skew-y: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-pan-x: ; --tw-pan-y: ; --tw-pinch-zoom: ; --tw-scroll-snap-strictness: proximity; --tw-gradient-from-position: ; --tw-gradient-via-position: ; --tw-gradient-to-position: ; --tw-ordinal: ; --tw-slashed-zero: ; --tw-numeric-figure: ; --tw-numeric-spacing: ; --tw-numeric-fraction: ; --tw-ring-inset: ; --tw-ring-offset-width: 0px; --tw-ring-offset-color: #fff; --tw-ring-color: rgb(59 130 246 / 0.5); --tw-ring-offset-shadow: 0 0 #0000; --tw-ring-shadow: 0 0 #0000; --tw-shadow: 0 0 #0000; --tw-shadow-colored: 0 0 #0000; --tw-blur: ; --tw-brightness: ; --tw-contrast: ; --tw-grayscale: ; --tw-hue-rotate: ; --tw-invert: ; --tw-saturate: ; --tw-sepia: ; --tw-drop-shadow: ; --tw-backdrop-blur: ; --tw-backdrop-brightness: ; --tw-backdrop-contrast: ; --tw-backdrop-grayscale: ; --tw-backdrop-hue-rotate: ; --tw-backdrop-invert: ; --tw-backdrop-opacity: ; --tw-backdrop-saturate: ; --tw-backdrop-sepia: ;" id="isPasted">Interest Rate Swap: In an interest rate swap, two parties agree to exchange interest payments on a notional amount of principal for a specified period of time. This is often done between entities with different types of loans or financing arrangements. For example, one party might have a fixed-rate loan, while the other has a variable-rate loan. By swapping payments, both parties can effectively change the nature of their interest rate exposure.</li><li style="box-sizing: border-box; --tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; --tw-rotate: 0; --tw-skew-x: 0; --tw-skew-y: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-pan-x: ; --tw-pan-y: ; --tw-pinch-zoom: ; --tw-scroll-snap-strictness: proximity; --tw-gradient-from-position: ; --tw-gradient-via-position: ; --tw-gradient-to-position: ; --tw-ordinal: ; --tw-slashed-zero: ; --tw-numeric-figure: ; --tw-numeric-spacing: ; --tw-numeric-fraction: ; --tw-ring-inset: ; --tw-ring-offset-width: 0px; --tw-ring-offset-color: #fff; --tw-ring-color: rgb(59 130 246 / 0.5); --tw-ring-offset-shadow: 0 0 #0000; --tw-ring-shadow: 0 0 #0000; --tw-shadow: 0 0 #0000; --tw-shadow-colored: 0 0 #0000; --tw-blur: ; --tw-brightness: ; --tw-contrast: ; --tw-grayscale: ; --tw-hue-rotate: ; --tw-invert: ; --tw-saturate: ; --tw-sepia: ; --tw-drop-shadow: ; --tw-backdrop-blur: ; --tw-backdrop-brightness: ; --tw-backdrop-contrast: ; --tw-backdrop-grayscale: ; --tw-backdrop-hue-rotate: ; --tw-backdrop-invert: ; --tw-backdrop-opacity: ; --tw-backdrop-saturate: ; --tw-backdrop-sepia: ;">Currency Swap: A currency swap involves the exchange of interest payments and principal in one currency for equivalent payments in another currency. Currency swaps are often used by companies or investors who have cash flows or investments in different currencies. This allows them to manage currency risk by locking in exchange rates and avoiding potential losses due to currency fluctuations.</li></ol><p><br></p><p>Swaps are typically traded over-the-counter (OTC) and are customizable to suit the specific needs of the parties involved. The terms of a swap include the notional amount (the hypothetical principal on which the cash flows are based), the payment frequency, the reference rate (e.g., LIBOR for interest rate swaps), and any other terms that define the cash flows exchanged between the parties.</p>

<p id="isPasted">A swap in forex trading is a fee that is charged to traders who hold positions overnight. This fee is calculated based on the interest rate differential between the two currencies in the pair being traded. For example, if a trader is long EUR/USD, they will be charged a swap fee because the interest rate in the euro is higher than the interest rate in the US dollar.</p><p>Swaps are typically charged on a daily basis, but the actual amount of the swap fee can vary depending on the broker and the currency pair being traded. Traders can usually find information about swap fees on their broker's website.</p>