Top Forex Brokers – In forex trading, many foreign terms are used. Those who are new to forex trading may be confused by these terms. Of the many terms that are often mentioned, swap is the one that is often mentioned. A swap is also known as a rollover, or overnight interest.
What is swap in forex trading ? Swap is the difference in the reference interest rate applicable in each country whose currency is traded on the forex market. Swaps are only accepted by traders from overnight positions past midnight (broker server time) and will be determined based on whether the position opened by the trader is a long position (buy a pair) or a short position (sell a pair).
Every pair traded that stays overnight, the trader will be charged a swap fee. The amount is according to the interest rate set by the country of each pair. The trader must pay interest on the currency sold, and at the same time will receive interest on the currency purchased.
If you are still confused, let’s try to clarify it with the following case study. Example, currently Australia’s interest rate is 2 percent, while the US interest rate is 0.5 percent. If a trader ‘buys AUD / USD’, it means that the trader is buying AUD and selling USD. If the trading position is left open until past midnight (broker’s server time), the trader must pay interest based on the USD interest rate and will receive interest based on the AUD interest 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. Conversely, if a trader ‘sells AUD / USD” , traders will get swap per lot -1.5 percent.
– Why do brokers give swap-free?
Many traders don’t mind being subject to swaps by brokers, but there are those who don’t want to use swaps. They are mostly Muslims because they think swap is usury and is prohibited by their faith. so many brokers provide swap-free trading accounts to accommodate the interests of Muslim traders.
now you just have to decide whether you want to trade using swap or not. If you don’t want to trade with swaps, choose a broker that provides a swap-free type account or is often known islamic accounts.
