Lesson: Swaps and Their Importance in Trade

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Lesson Objective

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Lesson Plan

Swap as it is well known among traders is the position transfer to the next day. Two parties while making a deal to sell or buy pay on the day called Value Date.

Within two working days after the transaction the settlement is realized. The currency volumes involved in the transaction are lent and borrowed at credit interest rates.

What swap conditions are beneficial?

The cost of the rollover depends on the interest rate differential between two currencies as it is directly connected with it. The costs of rolling long and short positions on the same currency pair can be different based on the difference between the deposit and credit rates of the same currency.

The position rollover will be beneficial if the rate for the currency sold is low and the rate for the currency bought is high. Traders are provided with favorable swap conditions if the position is transferred to a day ahead and they deal with Overnight Rates reflecting the current state of market. The terms can be worsened if the company calculates Swaps setting as a fixed percentage.

What is important for traders?

The difference between Swaps for Long and Short Positions plays an important role in Swap operations. If this difference is great it signifies greater interest because in the interbank market the spread between credit rates and overnight deposit is usually low, particularly for liquid currencies.

It’s essential to give importance to the rollover conditions as traders can perform a swap operation only once a day, and especially if they  want to open and hold positions for a long time focusing on rather continuous movements than on intraday price movements.

Traders also pay special attention at the case of lock mode hedging. For understanding this let’s consider a situation when a trader opens a position and anticipates some changes in the market that has not started yet. He will probably hedge the position by opening the opposite one. The cost of keeping such positions will be minimized by the low spread between the rates as ensured by the “Interbank” Swap.


Be well aware of what swap is and find the best conditions for you to trade in the most profitable way.

Lesson Resources

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