What is Currency SWAP

Many emerging traders face the question of what a currency swap is and whether to fear it. Swap is charging an additional fee to the trader for holding a position for more than a day. But few newcomers know that swaps are also positive. Let’s figure out more about what a currency swap is and whether you can make money on it.

Why the Next Day Transfer Fee

In order to understand this issue, it is necessary to understand in detail a few simple but not always obvious things:

  • The trader ‘s interest lies in speculation, not real currency acquisition. The entire forex market is a market for currency speculation.
  • Trader has no reason to receive real currency supplies. We don’t need to get real money from every currency purchase, or give it away with every sale.
  • Since the delivery of the real currency to the trader is not required, the forex currency market automatically shifts the delivery to the next day. This shift is the moment of accrual of the swap.

Now let ‘s try to figure out what exactly the swap is charged for and how it can be positive. Each currency has its own interest rate, this should be taken into account in further consideration of the issue. The fact is that the trader does not actually buy the currency, but takes it “borrowed” from the broker. But many trade with a positive swap, how is this even possible? The fact is that taking a “loan” trader automatically gives his consent that his “occupied” currency can be used by other traders. Hence the positive swap situations. It is possible to trade without a swap, for this purpose it is necessary to ask the broker to open a swateless account, but it is worth considering that in such cases the broker ‘s commission on transactions will be higher.

How To Earn On A Currency Swap

As mentioned above, on the Currency Swap you can earn money, here is what it is necessary to take into account:

  • Popular currency pairs are not suitable, they have too low a swap.
  • Choose low spread currency pairs.
  • It is necessary to sober assess the trend of the currency pair. By earning on the swap you can just lose money on the price rise.

A good example is the euro/Norwegian krone currency pair. It has a high positive swap and a low spread.

A currency swap is a natural component of a speculative currency market. It is not necessary to fear this phenomenon, the main thing is to approach this issue competently. Practice shows that with proper experience on swaps it is possible to make good money. And on popular currency pairs, it’s too small to pay serious attention to it.