In the world of forex trading, there are many foreign terms. One of them is “forex swap”, which is also known as rollovers, or overnight interest.
What is Forex Swap?
Forex swap is an interest fee that apply in each country whose currency is traded on the forex market. However, only the traders who open position after midnight who get the swap. Additionally, they should open positions, such as long positions (buy a pair) or short positions (sell a pair).
In other words, each country has a different reference interest rate. That interest rate will change from time to time. Therefore, there are high-interest currencies and low-interest currencies.
For example, if Australia’s current interest rate is 2 percent, while the United States interest rate is 0.25 percent. The traders who trade the AUD / USD pair should pay or even get a swap from the difference in interest rates between these two currencies. If a trader buys AUD / USD, it means that the trader buys AUD and sells USD.
If the traders open the trading position until after midnight, they must pay interest based on the USD interest rate. Besides, they will receive interest based on the AUD interest rate. This means that the swap will be obtained is 2 percent (AUD interest) minus 0.5 percent (USD), or the trader will get a per-lot swap of +1.5 percent.
Conversely, if a trader sells ‘AUD / USD’, then the trader actually sells AUD and buys USD. If the traders open the trading position until midnight (broker server time), the trader must pay AUD interest and will only receive USD interest.
According to Vantage FX , you should think that swap is an added bonus or incentive for holding a trade long term (or in the case of negative swap, a deterrent).
Read more: Harmonic Pattern, Make Your Trading More Accurate
