When rolling a position over market a new value date to "the next day"an operation called Swap is performed — the company charges or pays a certain amount depending on the interest rate differential between the two currencies involved in swap transaction, forex its market and volume. In the Spot market the settlement is carried out within two working days following the transaction. Thus, for example if a position is opened on Monday, the settlement is made not later than on Wednesday.
If a position remains open and is rolled over to the next day, in terms of mutual settlements, it means market the value date is transferred to a day ahead. The corresponding volumes of currencies involved in transaction are lent and borrowed in the interbank market at current deposit and credit interest rates. The cost of the rolloveror more precisely saying, its volume and sign, depends on the interest rate differential between the two currencies of the transaction.
Normally, deposit and credit rates on the same forex are different credit swap is usually higher. That is why the costs of rolling long and short positions over on the same currency pair are different. Obviously, Swap conditions offered by different companies may vary dramatically: The question is how far a company has stepped away from the current rates of interbank market in Swap calculation. Since the position is rolled over to a day ahead, these are Overnight Rateswhich reflect the current situation in the money market and provide the most favorable Swap conditions for the client.
However, if a company is far from the upper levels of the hierarchy of the market, the cost of the rollover gets worse for the clients just because each new market of the hierarchy adds to rollover costs its own interest; that is why real Forex Swap Rates may differ significantly from swap interbank rates.
Other companies, providing trading services, often set their interest as a fixed percentage when calculating Swaps, thereby worsening conditions for the Client. The amount of such additional "commission" in different companies may also vary substantially. When forex the conditions of Swap operations, it is also worth to pay attention to the difference between Swaps for Long and Short Positions.
The greater the difference, the greater interest is added in the calculation by a company, because the spread between overnight deposit and credit rates is usually low in the interbank market, especially for liquid currencies. Swap operation is performed once a day, so the conditions of rollover are especially important for those who hold positions open for a considerable period of time, focusing not on intraday price fluctuations, but on more continuous movements, for clients who open strategic positions and forex on the trend on the basis of fundamental changes in the market.
In addition, favorable Swap conditions have a vital importance for clients using Carry Trade strategies. These strategies are swap precisely on the interest rate differential between currencies, with borrowing in a currency with a lower rate, and depositing in a currency with a higher rate.
Imagine that the client has opened a position expecting a certain movement in the market, but it has not begun yet. The client may wish to hedge the position through opening an opposite one without closing the first position.
See an example market Swap Calculation for the Currency Pair AUDUSD. The company has steadily been working since serving its customers in 18 swap of 60 countries over forex world, in full accordance with international standards of brokerage services.
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