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How to use swaps trader?

Accrual currency swap (eg, swapping operation) can bring the trader as losses and gains. Some beginners trading does not pay attention to swaps (C) - and it is in vain. Professional trader always take into account the presence of C in their trade, is one of the little secrets of profitable trading.

There are different types of C. depending on the timing and implementation of: forward, etc. We will talk about S. currency because we are interested in is making a profit on the Forex market.

Determining swap

Swap (born swap) is a combination of two opposite transactions of the same volume with different dates. Value date - is the date of the transaction, the closer in time. End date - is the date of execution of the transaction back, which is more distant in terms. Most often, currency swaps entered into for periods up to one year, sometimes for a couple of months.

Swapping operation is usually carried out within a single counterparty, ie both operations are carried out through the same bank (broker). C. This is called clean (pure swap). If using 2 opposite konvesrionnye deal with different value dates of the same volume, and concluded at different banks - this will be called C. engineered (engineered swap).

How is the swap?

C. The quantity determined by the difference between the exchange rates - ie conversion transactions. In a simplified version for a better understanding, it looks like deposit and lending rates in the bank. These interest rates are relevant for both sides, which make a deal - and the stakes coordination among themselves. Since the interest rate on the loan, the bank is always higher than the deposit, then the equality of the volume and timing of cash interest payments can not be equivalent. Ie $1000, laid on a deposit account in a bank, you will get, for example, 1% per month ($10 profit), while taking a bank loan for $1000, you must pay 2% per month ($20) . As a result, you lose out on $10. This will be the value of C for our example.
In backtesting strategies can also be used swap.

It should be noted that S. can be both positive and negative. Forex we are dealing with currencies, interest rate for each of them is determined by the Central Bank of the country. Interest rate is called the refinancing rate.

If we borrow the Japanese yen, which has a low interest rate for another currency, such as the New Zealand dollar, which has a high rate of refinancing, you will get a positive C. Generally, the operation of swapping occurs, usually at 00.00 or 01.00 Moscow time. S. is charged on all open positions.

It should be noted that today it is possible to open a trading account to which swap is not charged. This is done for the convenience of traders themselves, and out of respect for Muslims, whose religion forbids the use of C. Therefore, such accounts are also called Islamic (more popularly known as "not swap account").
Learn what the size S. and polarity (positive or negative), please visit the trading conditions of your forex broker. The greater the volume of an open transaction, the greater the amount of the swap.

In the night from Wednesday to Thursday there is a charge triple C. as compensation for the weekend. As you know, the Forex on Saturday and Sunday are not working, so accrual S. treble on Wednesday - a common practice among brokers.

As a trader to use currency swaps?

C. use or not depends on how the trade trader. When you open a position for a short period of time (a couple of minutes or hours) C. can not ignore its charging does not significantly affect the amount of profit or loss.

Another thing, if you open a position and hold it against the day or longer. There are traders, long-term investors who can hold the position a month or six months. In this case it is advisable either to trade in the positive swap or use not swap account. That is all there.

Opening position in the right direction on Wednesday, you can get a double profit - both from S. and at the transaction from the movement of the currency pair. There are strategies that actively use the accrual of positive C. - for example, CarryTrade.

Do not neglect this important concept and, in fact, an additional tool to profit on Forex as swaps. Skillful traders always reduce their losses and increase profits by correctly using and swapped not swap account.

By the way, the broker offers Forex4you not swap cent accounts with leverage from 1:100 to 1:500.

Go back Forex currency position / Next article How to Trade Forex Futures?


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