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What is a swap point in forex?

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What is a swap point in forex? Empty What is a swap point in forex?

Post by Bahu123 on Thu Nov 12, 2015 6:52 am

The Foreign exchange spot market (Forex) trades currencies in pairs, buying and selling a base currency against a quote currency. When a trade is held open at the close of the trading day, that position is rolled over to the next day and is subject to a roll-over charge, called the swap point or credit.
Forex roll over
The swap point adjusts the trading (spot) price from the currency pair's fixed interest rate differential, either deducting or adding to the Forex position's original traded rate.

Interest rate differential
While keeping the position open, you receive interest on one currency (credit) and pay out interest (charged) on the other.

Swap Feed
The Tier-1 interbanking swap feed sets the overnight interest rate. To make a profit, you must know the swap point based on the interest rate for each country's currency.

Higher Yield
Speculating on the swap point can be based on the higher ask price against the bid price between the base and quoted currencies rate. When the interest rate is higher than the base currency, then a higher yield is attained when the position is closed.

Another term
The more common Forex term for the swap point is "tom-next" swaps.

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