WHAT IS SPREAD?
Transactions in the forex market are conducted on an electronic trading platform called MetaTrader 4. On this platform, swap interest/swap rates are denominated in US Dollars (USD). However, in international markets, on other electronic trading platforms, swaps are also denominated in points. The following example shows the swap points.
Swap Point Swap Long Swap Short
USDTRY -0.00066 0.00057
USDZAR -0.00202 0.00118
The reading of swap points is as follows:
In USDTRY (USD/TL) pair, if 1 lot long position is held, 66 TRY swap interest will be paid overnight.
In case of having 1 lot short position in USDTRY (USD/TL) pair, 57 TRY swap interest will be earned per night.
SWAP POSITION CALCULATION:
If we go through the above example, we can convert swap points into currency as follows.
Assume that we have 1 lot long position in USDTRY parity. 1 lot is 100.000 units in currency pairs as position size. If we multiply the swap cost of the long position (0.00066) by the position size of 100,000, we get 66. In forex trading, the profit/loss is calculated in the opposite currency, not in the base currency. Therefore, the result of -66 is in TRY. A negative number means that we, as investors, bear the cost of the swap. Why this figure is negative is explained in the forex swap examples below.
FOREX SWAP EXAMPLES:
Buying EURTRY (Euro/TL) parity (long) means buying Euro and selling TL in return. Selling EURTRY (short) means selling Euro and buying TL in return. The Euro policy rate is 0.05% and the Turkish Lira policy rate is 7.5%. Therefore, buying (holding) EUR and borrowing TL in return means incurring swap costs.
With the above information, let’s assume that we buy (long) 1 lot of EURTRY at 2.80. This transaction actually means buying 100.000 Euro and selling 280.000 TL at 2.80 exchange rate. Assuming a Euro interest rate of 0.05%, a daily interest yield of 0.11 Euro per 100,000 Euros would be generated. Assuming a TL interest rate of 7.5%, we will pay a daily borrowing interest of TL 48.91 for selling TL 280,000.
So, in summary, we would have a daily swap cost of approximately 48.50 TL for 1 lot EURTRY buy trade. If we were to sell (short) EURTRY, we would have swap income, the opposite of the above example. The calculation is done in the same way, the only difference is that here we would borrow Euro and earn TL interest.
The word swap is an English word. As a word, it means to change or swap. Its meaning in the stock market is actually similar to the meaning of the word. Swap is one of the most frequently misunderstood or ignored issues by stock market users. However, it has a very important structure for stock exchange transactions. According to the transaction made by the stock exchange user, a value is assigned to his account as + or -. This value is the forex swap value. According to the swap system, if the exchange user gives the high-interest product to the market and buys the low-interest product himself, then a swap value of – is assigned to his account. This is because the user has exchanged the high interest rate product with the low interest rate product in the market for a certain period of time in order to obtain lower interest. This is why this transaction is called a forex swap. If the user applied the opposite process, that is, if the user gave the low-interest product to the market and bought the high-interest product himself, then the user’s account is assigned a + value.
What are the Forex Swap Fee Rules:
Swap prices are not the same for every transaction. It differs from transaction to transaction. – Forex Swap fees are transferred to the system at 00.00 every night. – While 3-day swap is applied to transactions made on Wednesday, one-day swap value is applied to transactions made on other days. – Swap value may vary depending on the official holidays of the country where the transaction is made. – The swap amount includes the rates of liquidity providers.
Is it possible to trade Forex without Swaps?
For those who want to trade interest-free or do not want to deal with swap rates, the forex system also offers swap-free trading. There are many swap-free trading options in the forex market. Those who want to trade without swaps can choose among these options. If the investor wants to trade swap-free, he/she can get detailed information on this subject from forex experts or brokers.
