1.1.6_ENG_GEN_Understanding Swaps

Author: Livia Tay, MY 
Last Updated: November 27, 2024


Trading can feel overwhelming at first, but breaking down the basics helps make it easier to grasp. In this article, we'll focus on one common term: swap.

Let’s keep it simple and straightforward!

What is a Swap in Trading?

1. A swap is a fee or reward charged when a trading position is held overnight. It’s also called an “overnight interest.” Swaps depend on two things, kindly refer table 1.1.6.1a for detailed information.
   
   

   The Type Of Position	Whether the trader is buying (long) or selling (short).
   Interest Rates	The difference between the interest rates of the currencies in the trade.

                                                                        table 1.1.6.1a
   
   
2. Key Points to Remember
   Kindly refer table 1.1.6.2a for detailed information.
   
   

   Swap rates vary by broker	Different brokers have different calculations and policies.
   Market conditions affect swaps	Swaps can change based on interest rates or broker terms.
   Not all instruments have swaps	For example, some brokers offer "swap-free" accounts for specific client needs.

                                                                    table 1.1.6.2a
   
   

   How to Explain Swaps to Client
   

   Use simple language, like:
   
   a. “A swap is a fee (or interest) charged for holding a trade overnight. It depends on the trade size and the currencies being traded.”
   
   b. “If you want to avoid swaps, you can close your trade before the market closes each day.”
   
   

   This explanation ensures customers feel informed and supported. For any customer-specific inquiries, always check the customer’s account details and broker policies.
   
   

   Feel free to refer back to this article for quick clarification!