What is the Swap?
Swap, it is a rollover or an overlay, is the operation of moving the item to the next day. It is executed automatically by the broker, that is, without the participation of the trader. A feature of myforex currency market is that it is necessary to close and open a position for the same amount at the end of each day in order to settle the obligations of both parties.
It is not uncommon for aspiring traders to be afraid to trade on day schedules due to the presence of swaps. Their main fear in this case is the need to pay additional money while holding the position for a time exceeding one day. But swaps also have their undeniable advantages. What are they essentially? Forced extra fees or a chance to make a big profit? Does it have to be paid?
The swap is the margin between interest rates on the loans of two currencies, which is transferred to or debited from the account if the trading item is transferred to the next day. A Forex swap can have both positive and negative values.
What is the reason why you want to pay for the transfer of the item to the next day?
First of all, it is about the lack of desire to really get currency. If we take, for example, the purchased pair of euros/US dollar, the task of the bidder in this case is not to purchase the euro and sell the dollar as such, but as a result of speculative actions, in which the main interest and task is that the price start to move down or up depending on what the position of the bidder is. That is why it is necessary to postpone the warrant to the next day. At the time the transfer is made, the swap is also charged to myforex.
And the charging of this fee is based on the fact that the seller does not have a traded currency when selling, and he kind of takes it into debt. Subsequently, you will have to pay a 1% credit rate when you transfer the position. And if the missing object is sold, the interest is paid for the fact that the funds provided as a loan were used. But what then is the reason why the interest received depends on the rate and why is extra paid when buying?
The fact is that by buying any currency, the bidder voluntarily authorizes the use of his position in order to provide credit for the sale of that currency to another person. Therefore, on purchase and is charged an additional interest rate, which in turn is written off on sale. The difference between rates and is called "swap."
How do I find a swap in a terminal?
The Swap column is displayed in the terminal when an item is opened. And when it is transferred to the next day, the swap will be visible where the profit and loss indicators are placed, as well as the prices at which the opening and closing are carried out. As already mentioned, myforex have both a positive swap and a negative swap. It is important to know that on the night from Wednesday to Thursday the swap is charged in triple amount, as on non-working days the banks close, but at the same time there is a payment on all loans, as well as receipt of transferred funds. Directly charging for Forex swaps is done at 5:00 pm (according to New York time) or 0:00 pm (according to the time specified in the terminal).
Where do watch swaps?
Information about swaps, as well as calculation of swap on forex can be done by visiting the official internet page of the broker. You can also see swap data in the terminal in the Market Overview window. This section provides information about both long and short position swaps.
Does it make sense to take swaps into account? After all, they often act as an obstacle to the way of beginners who want to trade on daily schedules and open positions once a day, as well as to carry out analysis on D1 schedules. Such merchants often believe that the payment charged for the transfer of the position results in mandatory and significant losses. However, this perception is fundamentally incorrect, especially when trading in the most common currency pairs.
Due to the extremely low indicators of credit rates of the Central Bank, the main economic players, both negative and positive swaps do not exert serious pressure. Thus, on average, if you do not plan to hold a position for more than two weeks, you do not have to take swaps into account. However, at the same time, position traders and investors holding positions for several months should not ignore the swap of short and long positions, because over a long period of time a large enough amount may be obtained.
Which forex trading strategy is best chosen when holding a position for more than one month? In such a situation, non-profit accounts, the possibility for opening which is provided by most brokers, will be extremely useful. When you start such an account, you just have to point to the no swap option. However, note that in this case, the position fee will increase. This is due to the broker 's need to compensate for the losses.
But there are also s forex trading strategy that target swaps. For them there is a common name - Carry Trade. Their essence is to hold the position as long as possible and receive as a result of a positive swap. That is, the main earnings are supposed to be derived not from the way foreign exchange prices move, but from swaps. It is possible to use the forex trading strategy of such a plan in trading currencies with a significant positive swap, and, for example, in the case of a pair of euros/US dollar, it makes no sense due to small swaps.
As an example, a pair of Euro/Norwegian krone can be considered, in which in short positions the swap indicator is 2.5 points. Along with a small spread of 0.1, this will play into the hands of the trader, as there will be no obstacle when opening positions. The main question is whether it makes sense to open a short position and hold it long-term, because the currency may have a global uptrend. Yes, definitely, in that case, the long-term retention of the short position will be unfavourable, because the money will be lost due to the rise in prices. Therefore, it is necessary to select a pair that not only has a positive swap, but also with a global trend going to the direction in which it is planned to trade.
forex trading strategy of Triple SWAP
Traders, knowing the specifics of SWAP calculation, try to generate revenue by maintaining an open position after the closing of the trading session. Although in most cases SWAP is negative, that is, a certain amount is deducted from the trader 's account. Some currency pairs are characterized by positive SWAP parameters, meaning certain funds are credited to the trader 's account.
Some traders believe the most substantial gain, however, could be achieved at the end of Wednesday 's weekly trading system, when a triple swap is charged, so they usually open up high volume positions at short notice in hopes of making a profit. In general, this is the essence of their strategy. Positions do not close for a long time, but close almost immediately after positive SWAP occurs in this way, speculators can buy currency 20-30 seconds before SWAP is added and close the position, that is, open a short position 10-15 seconds after rollover.
It should be clearly understood that during these 40-50 seconds from the placement of such a position until its liquidation, the "settlement" procedure is fully implemented. The calculation is made by banks so that traders can keep their positions open after the session is closed. This is usually due to the bankov procedure when performing two opposite transactions with one liquidation of a previously opened position, and the other - with the re-opening of an identical position of the same volume, but with a different price with payment for overnight accommodation.
Settlement is performed for all contracts, including short-term items opened under Triple SWAP. The haste with which they open the trade is due to the danger of adverse price movements, which can lead to substantial losses that cannot be recovered even when using Triple SWAP. Positions are opened and eliminated within seconds, achievable through the application of advanced Triple SWAP experts. Some market makers are aware of such tactics and can therefore influence price by trying to control and protect the market from using such strategies.
Currency pair fluctuations in the settlement process can affect yields. If there was no change in price or it suddenly took off, the trader may withdraw from the profit deal or not receive revenue at all, however they may receive a positive SWAP credited to their account. In the event of adverse price fluctuations, the trader may suffer losses that may be covered by positive SWAP payments. The profit will come in the form of a difference between a positive SWAP and the losses incurred combined with the commission paid to the broker.
Let 's take an example where the AUD interest rate is significantly higher than the US dollar interest rate, resulting in an imbalance between AUD/USD 's long and short positions with long positions exceeding short market positions. At the end of the weekly trading system, the calculation procedure begins. Long positions on AUD/USD are closed, resulting in increased sales in the Australian dollar. Naturally, this process is followed by reducing BID quotations and widening the difference between Best ASK and Best BID with little or no change in ASK quotations. The BID price rises after these trades resume, that is, after the AUD buyout, which ultimately helps normalize various values.