SWAP RATES
Swap price is the reflection of the low-interest foreign currency in your position to your account as + or - according to its relationship with the high-interest foreign currency. The swap, which is the overnight carrying cost of the interest differences between the different currency pairs in which investments are made, can also be briefly defined as the swap of debts with different interest rates. Swaps are made in the opposite unit of parity. That is, for EUR swap rates in USD/EUR, the overnight handling fee will be processed in EUR. If we explain this with an example; Let's take the US Dollar (interest rate=0.25%) and Turkish Lira (7.75%) which have a large interest difference between them. If the investor has made a BUY transaction in the dollar TL parity, he/she thinks that the USD will rise and the Turkish Lira will lose value, and if he/she buys US Dollars in return, he/she has sold the Turkish Lira.
Here, since the investor buys the currency with a low-interest rate and sells the Turkish Lira, the currency with a high-interest rate, at the end of the day, he will not close his position and will have to pay swap interest on the USD/TRY position he has carried to the new day. That's all! We can say that swap rates are one of the most confusing terms in the finance world. They are also among the topics that many investors are curious about. Although it may seem a bit complicated to lend money with the money bought and borrow with the money sold, the logic of the Forex swap rates is actually quite simple as we mentioned in our example. You can use FairMarkets’ Meta Trader 4 based currency swap rates platform to make fast and practical transactions in this market.
Swap Transactions
For positions that are not closed at the end of the day and are carried to the next day, swap rates today, which are the carrying costs of the daily interest differences between the currencies, are operated overnight, so transactions that are opened and closed during the day do not affect the swap cost. Since there is no transportation cost, swaps are not applied to the positions during the day. There are three types of swap transactions in the market. Respectively; currency swap is differentiated into interest rate swap and cross-currency swap. Let's look at the swap types in summary;
Cross-currency swap rates transactions; It is the name given to the parties that have borrowed in different currencies and different interest structures (fixed or variable) to fulfill the necessary obligation by agreeing to fulfill the principal and interest payments of the other party's debt.
Currency swap rates transactions; It is the name given to the transaction carried out by exchanging a certain amount of currency at the rates and conditions agreed by the parties before.
Interest rate swap transactions; We can say that it is a contract that stipulates the change of the interest to be calculated on the basis of different interest rate swap principles over an indicative principal amount in terms agreed between the two parties.
Earning With Swap Transactions
Swap rates, which are one of the subjects that Forex investors are most curious about, simply arise from the interest rate difference of the two currencies in the trading parity, and if the investor moves to a new date with the position he opened, these rates are + or - affected. If an opened position is closed without changing the day, that is, if it is made during the day, then there will be no swapping. If we explain this with an example; Let's take the US Dollar (interest rate=0.25%) and Turkish Lira (7.75%) which have a large interest difference between them. If the investor has made a BUY transaction in the dollar TL parity, he/she thinks that the USD will rise and the Turkish Lira will lose value, and if he/she buys US Dollars in return, he/she has sold the Turkish Lira. Here, since the investor buys the currency with a low-interest rate and sells the Turkish Lira, the currency with a high-interest rate, at the end of the day, he will not close his position and will have to pay swap interest on the USD/TRY position he has carried to the new day.
Frequently Asked Swap Rates Questions
When Are Swaps Made?
Since the markets are closed on the weekend and the open positions in the pairs are valued for 2 days, a 3-day swap is applied when switching from Wednesday to Thursday on weekdays. In short, in the transition from Wednesday to Thursday, 3-day transportation cost is applied, covering Saturday, Sunday, and Monday, including the weekend. Transport costs may also differ according to currency pairs. Swap dates will also vary when markets in a currency's country are on holiday.
Is Forex Swap Transactions Reliable?
As with all Forex transactions, fx swap rates transactions are legal and reliable. With the FairMarkets platform, you can safely carry out all your transactions.
