What is Forex Swap 2021? Swap Calculation Formula – Introduction to Forex
Swap in Forex indicates the cost of carrying overnight. While calculating the swap rate in Forex, the interest difference between the two countries’ currencies in the parity is taken into consideration. There is a swap cost for every currency pair that can be traded in Forex markets. In addition, investors are also offered the option of swap-free Forex account. This account is called swap-free Forex or Islamic.
Trading is carried out in the Forex market on the trading platform called MetaTrader 4. Swap expense can be created by trading in the Forex market on assets such as interest, money, commodities, stocks. By using swap calculation tools, it is possible to have an idea about the amount of transportation cost. The cost of swaps is very important for investors, as investors make profit or loss in the Forex market due to position, spread and swap.
What is Swap?
Looking at the word meaning of Swap; It is a word that means to change and exchange. Financial Considering the usage in the markets; It seems to be used in different ways. The definition of swap in the Forex market is the transport cost. While calculating the transportation cost, the difference in interest between the currency pairs in the currency pair traded in the Forex market is taken into account.
Positive or negative overnight carrying cost is calculated according to this interest difference. In cases where the transportation cost is negative, a certain amount is deducted from the profit. In cases where the transportation cost is positive; Even if no profit has been made from the transaction, swap income can be earned. While the interest rate difference is very high in the USD / TRY parity, the interest rate difference is very small in the EUR / USD parity. Therefore, swap prices may not be taken into account in parities with low interest rate difference such as EUR / USD.
What Determines the Swap Costs?
The factors that swap costs depend on are as follows:
- It varies according to the level of exchange.
- It varies according to the TL interest.
- The swap cost is calculated according to the interest of the foreign currency.
What are the Swap Transaction Types?
Swap types are 3:
- Money swap transactions: The parties agree on a proportions beforehand. The currencies determined within the scope of the conditions are changed.
- Interest swap transactions: Different interest rates are calculated on an indicative principal amount and the calculated interest rates are the name given to the contract that is expected to change in terms with the agreement of both parties. There is no change in principal under the contract. However, there is a change in the structure of interest payments of debts in the same currency.
- Cross currency swap transactions: Different interest structure and different currencies are required by the borrower to fulfill its obligation to the other party. They make their principal and interest payments in agreement.
What is Forex Swap Example?
If it is necessary to give an example to better understand the place of swap in the Forex market; Consider an investor who will trade in USD / TRY parity. If the investor takes a buy position, it means that he will invest the dollar and foresee that the dollar will be valued against the TL. If it takes a sell position; He prefers to make his investment in favor of TL because it means that TL will gain value against the dollar.
Suppose the investor enters a buy position and therefore buys dollars. The interest on the TL is higher than the dollar. Therefore, since the savings are not directed to TL, but the dollar purchase is made, the interest difference is the swap cost and the investor has undertaken this amount. If the sell position had been taken under the same conditions, swap income would have been obtained since the firm carried the money to TL, not the dollar, and the TL’s interest rate was higher.
For EUR / USD parity swap calculation formula In order to be implemented, the value of two currencies must first be taken and their differences must be found. Suppose their values are 1.24430 and 1.24450. The spread rate of the company is 200 points. According to this rate, which corresponds to 2 pips, the effect of the spread on the transaction is calculated for 1 lot. After the difference of the values in the parity is calculated, it must be multiplied by 100,000 since the calculation is made for 1 lot. The result is $ 20.
Calculated $ 20 is the calculation of the cost when the position is opened and closed. It is 20 USD with 1 lot and in case of a transaction of 1.000 lots, the cost reaches 20.000 USD. In order not to be adversely affected by the spread loss, the position profits must be above the spread profit. In order to make profits from positions, it goes through a smooth transaction design, disciplined approach and the ability to trade without losing to emotions. The investor only does not suffer from swap transactions in this way.
What Are The Rules To Know About Swap Fees?
Swap fees Important points about it are as follows:
- The time at which the swap fees are reflected to the transactions is 00:00 at night. The swap fees are reflected in the transactions daily, on the night of each work day. No swap fee is processed for transactions that are open during the day. If the remaining open transaction is reflected in the following days; swap fees can also be reflected in transactions.
- On Mondays, Tuesdays, Thursdays, and Fridays, swaps are processed over 1 day. For the night connecting Wednesday to Thursday night; The 3-day swap fee is reflected in the transaction. The main reason for this is; the bank and the firm’s swap agreement has a value date. Value is calculated as t + 2 for Forex firm. Since the market is closed at the weekend, swap prices cannot be reflected on a daily basis. For this reason, Wednesday night should be reflected in the transactions.
- Since the swap costs are calculated according to the interest rate of the currency, the swap cost differs according to the parity.
- One of the sources that Forex firms make a profit is the commission received through swap. It is not only the one-to-one interest rate of the relevant currency, but also the commission rate of the Forex firm. Therefore, the swap fee calculated in each Forex company is different.
- There are two different swap fees, swap long and swap short.
How To Calculate Forex Swap?
Forex swap calculation Forex firm to work with; You can use the Forex calculator on the website of the relevant company. also MetaTrader Thanks to it, swap calculation can be made. For this, it is necessary to first enter the symbol properties and then calculate the swap from the computer or the phone by considering the swap short and swap long values.
In case of logging into the MetaTrader application via Android or IOS; For swap calculation, long click on the parity and the option that appears after selecting the swap values should be seen. Those who want to view the swap price on the computer can view the swaps operated on the terminal window. In the event that one night has not passed over, the part with the swap fee is seen as 0.
What Are The Strategy Advice For Forex?
As a result of transactions in Forex, swap cost consists of. Often it is handled minus the swap cost. However, swap income can also be obtained in parities such as USD / TRY. Whenever a change in currency is not predicted, continuous swap income can be obtained by entering a sales position. The reason for this is; USD / TRY parity swap short value is high and in the positive direction. This means that swap income can be obtained with the sell position. In addition, in pairs with a swap value such as USD / TRY, USD / MXN and EUR / AUD, you can open a transaction without overnight and make a profit with the transaction made without the swap amount reflected. However, those who want to make a profit with such transactions should perform these transactions when the market is in a horizontal trend.
How to Read Swap Points?
On the MetaTrader 4 trading platform, swap interest is seen in USD. However, it is also possible to see swaps in points on other trading platforms. For USD / TRY parity swap long is -0.00066, swap short is 0.00057. The things to know in order to read these swap points correctly are as follows:
- If 1 lot has a long position while trading on USD / TRY parity; This means that the swap interest of 66 TRY per night will be paid.
- If 1 lot holds a short position in USD / TRY parity; In this case, a swap interest of 57 TRY per night is obtained.
What is Swapless Forex?
Swap Free Forex; It is also called Islamic Forex. There may be investors who think that the swap income and cost are not suitable for their religion due to their religious sensitivity. Due to their sensitivity on swap income, the swap-free Forex option was born. Most of the major Forex firms have a swap-free Forex option. Therefore, investors who will trade with the swap-free Forex option do not have difficulty in finding a Forex company.
Those who prefer the swap-free Forex option due to religious sensitivities, as well as those who plan to make long-term investments can choose the swap-free Forex option. If it is necessary to give an example; An investor who thinks to make long-term transactions with USD / TRY parity can gain from the exchange rate in the process. However, it is also possible that it may be damaged due to swap. In order to prevent this situation, those who will make long-term investments Forex without swap they are evaluating their options.