What Is Swap On Forex

In the world of forex trading, many foreign terms are used. Among them are swaps, which are often also known as rollovers, or overnight interest. To find out about swap, let's look at the following review.

Swap is the difference in the benchmark interest rate prevailing in each country whose currency is traded in the forex market. Swaps are only accepted by traders from overnight positions (broker's server time) and will be determined based on whether the positions opened by the trader include long positions (buy a pair) or short positions (sell a pair). In any pair, the trader must pay interest on the currency sold, and at the same time will receive interest on the currency purchased.

Still confused?

Here's the story. Each country has a different benchmark interest rate, and that interest rate will change from time to time. Therefore, there are high-interest currencies, and there are low-interest currencies. We can see the latest interest rates for each country in the Seputarforex data on this link.

For example, currently Australia's interest rate is 2 percent, while that of the United States is 0.25 percent. Well, traders who trade the AUD/USD pair may have to pay, or even get a swap from the difference in interest rates between these two currencies.

If the trader 'buy AUD/USD', it means that the trader is buying AUD and selling USD. If the trading position is left open until after midnight (broker's server time), the trader will have to pay interest based on the USD interest rate and will receive interest based on the AUD rate. This means that the swap that will be obtained is 2 percent (AUD interest) minus 0.5 percent (USD), or in other words the trader will get the swap per lot of +1.5 percent.

On the other hand, if a trader sells AUD/USD, the trader is actually selling AUD and buying USD. If this trading position is left open until midnight (broker's server time), the trader will have to pay AUD interest and will only receive USD interest. That is, the swap per lot that will be obtained is the opposite of the first example, which is -1.5 percent.

It's easy!?

Between Swap And No Swap

This swap is very important for traders. As can be seen in the first example, traders can profit from swaps simply by opening AUD/USD positions until past midnight. This trading practice is known as the carry trade, which means profit from the difference in interest rates.

On the other hand, there are traders who even avoid swaps, because swaps are obtained from interest rate differences which in Islam are considered usury and forbidden. Hence, many brokers specifically provide No Swap accounts. This facility offer is often carried under various labels, including sharia accounts, Islamic accounts, non-swap accounts, or swap-free accounts.

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