The need for swaps is explained by the nature of foreign exchange trading. The person who is selling the currency needs to physically deliver it on the next trading day to the one buying it.
But what do you do if the position has not been closed for several days?
To avoid physical delivery of currency when a position is held open overnight for trading the following day, it gets
closed and then one is opened at new market prices.
No changes are virtually made to the trading position in the trader’s account,
only the swap amount is either credited to or debited from it.
How are swap rates calculated?
The swap is charged or accrued when a trading position is left until the next day. Its value is based
on the interest rates established by the central banks. Because they do not remain the same and can change over time, the swap rates may also fluctuate.
To calculate the swap for a currency pair when purchasing one, you need to subtract the key interest
rate of the currency that is being sold from the central bank’s interest rate of the currency that is being acquired.
In addition, swap rates include the markups charged by banks and liquidity providers.
Their values are deducted from the difference in interest rates of the two currencies.
When the refinancing rate is higher for the currency that is being sold, this results in a negative swap.
How swap rates
are charged in forex
Trades that are left open between
11:59 PM and 12:00 AM are rolled over to the next day automatically.
Banks are closed on Saturday and Sunday, so the swap for both days off is moved to the weekdays.
Accordingly, the triple swap rate will be accrued or charged on this day.
The triple swap rate day is not the same for different trading instruments and depends
on the particular nature of settlements. You can learn more about the day on which the triple swap
rate is charged in the stock symbol’s specification on the trading platform.
Find out more information and trading tips in our training app.
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