What is the swap in forex?

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Many people, even those who already invest in the currency market, who do not know what the swap in forex is. Also known as swap points, swap commissions or forex rollover. Although it is true that it does not affect scalping or intraday operations, it is a charge to be recorded when a position remains open from one day to the next. A charge that can be both in your favor (they pay you) and against you (you pay it).

Accounting for all expenses and income is essential to a healthy economy. So let's see what the swap is, how it affects you, how you can benefit or harm yourself and, most importantly, how the swap is calculated in the currency market.

What is the exchange?

Some persons lo llaman rollover de moneda. The swap is the difference between the interest rates of two countries. It would be correct to say then, that it is the difference between the interest rates of the countries. However, since "currency pairs" meet in forex, it is better to say that the difference is between two countries. The two countries involved in a particular currency pair.

This annual interest, You must pay for each operation that we keep open from one day to the next and every day. And it exists because the interest rates to finance a country are not the same among them. We have areas with very low and even negative rates, such as the euro area (currency EUR), Switzerland (currency CHF) or Japan (currency JPY), and other higher ones, such as Russia (currency RUB). . There are isolated cases of countries with high interest rates, such as Argentina. On DataMacro, a Web que recomiendo y que he usado a menudo para buscar datos de otros países, vas a poder conocer los tipos de interés que existen en cada momento.

Where does the swap come from in forex?

Of the difference in the Central Bank interest rate to which each currency corresponds. To understand this, let's take the Australian dollar (AUD) and the Swiss franc (CHF) as an example. Among others, because the AUD / CHF pair is the one I am working on the most. For almost 2 years I have constantly open purchase operations. This example is approximately:

• Let us remember that the The first currency in the currency cross is the base currency., in this case AUD. The second is the quote currency., in this case CHF.
• AUD is subject to an interest rate of 1,50% and CHF has a rate of -1,25%. Your total differential is 1,50 – (- 1,25) = 2,75%. This would be in our interest, if our the position is bought. If, on the contrary, we sell, we will have to pay this interest.
• If, on the contrary, we took the cross the other way around (CHF / AUD) we would have a difference of (-1'25) -1'50 = -2'75%. Therefore, in a long position we would pay that swap and in case of sale we would receive it.

• Remember that if you buy the first currency you receive your interest, and when you separate from the second you pay it. On the contrary, if you sell, on the first currency you pay the interest, and on the second you receive it.
• Interest rates tend to vary over time. Some are very stable, others are very unstable (watch out for these, we don't crave scares).

So far, you can see the logic behind the exchange. If you take as a reference the interest rates of the currencies involved in each crossing, you will see how your broker pays you or charges you depending on which ones you have looked at.

The swap / rollover in the corridor

This is important. The broker does not express a percentage, but in pips (in his favor or against). And at the same time, you will see that it is not proportional, a long position is not the same as a short position. Shouldn't it be the same? Yes, it actually is. What happens in this case is that the broker charges a commission on each one and on its liquidity providers. And you have to understand it, because it is your business and we benefit from your services.

In my case, my broker pays me for a long position (Swap Long) in AUD / CHF, 0.44 pips per day. So if I open a short position (Swap Short) I would pay -0.71 pips per day. If no commission is charged, we may see more accurate pip figures, such as 0.55 and -0'55, as an example, depending on whether it was a buy or a sale.

How can you benefit from the exchange?

Be careful, because it consists of a double-edged sword. I explain. The first time I had a notion of the swap, my first impulse was to look for the currency that paid the most pips to keep an open position. «I will leave my position open ... Every day I will scratch more nuggets ... And I will be the master of the universe». Don't even think about it!

You can find out for yourself how quotes of those currency crosses with high swaps in the long run. If you look for them, which I encourage you to do, you will see some graphics that scare you. Does that mean that we should forget about the exchange? No, far from it! But It's a double edged sword, and I must warn you. The interests do not vary because they do, but that is another story.

An exchange can benefit you, or help you, without being a guarantee of total success, in making decisions. for long-term currency trading.

How is the swap calculated in forex?

Let's imagine that we yearn to trade a buy with the EUR / USD and, to simplify the numbers, let's imagine that we buy a mini lot, which is equal to 10,000 USD.

• Each pip, or what is the same, each 0'0001 of the EUR / USD price, is equivalent to $ 1.
• Interest rates in the US are higher than in the euro zone.
• In the United States, as an example, they are 2,25% and in the Euro Zone 0% (As an example, I am not saying that now these are).
• When buying EUR, we will receive the 0%, and if we separate from the USD, we will pay the 2.5%. Which means that we will pay an annual 2,25% of $ 10,000. Identical to $ 225.
• $ 225 per year, that is, $ 0.62 per day, which in pips would translate into -0.62 pips. Negative because in this case, it is what we must pay. And adding that the broker is going to add the commissions, a higher value can come out, of 0.9 or 1 pips.
• For the pips / points of the swap to go in our favor, we would have to make a sale instead of a buy, in this case.

En caso de que utilice otro par de divisas, los pips siempre se pagarán por la divisa cotizada. Después solo debes realizar la conversion a tu moneda, para entender el monto exacto que recibirás.

Latest conclusions

We have seen that swaps in forex, do not have any mystery, beyond the relevant calculation to understand how it affects us. What It can benefit us as well as harm us, depending on our decisions. And that's something to keep in mind, especially in long-term forex trading. It is also a valid calculation for metals such as gold and silver.

In addition there are brokers who use swap points as reinvestment for some commodities, which operate in CFDs. As long as we go long term, we must take into account those daily expenses that we are going to generate to keep an open trade.