A player performing intraday operations does not see the broker’s special commission load. But when the life expectancy of an open transaction exceeds one day, an additional type of settlement enters the arena of battles - a swap on Forex. This is the difference between the interest on the deposit with the player’s own funds and the interest on lending with virtual currency.
Free Forex does not exist
The Forex system is designed so that you have to pay for everything. The subject of the auction are currency pairs. The player on deposit must have finances. According to the rules of the auction, the owner of the deposit is charged interest on the amount of funds there. When buying a pair, the player formally buys the base currency - the first one in the pair, and sells the second currency, which he actually does not have on deposit, that is, he takes the second currency on credit. Therefore, in the case of an open transaction for a period of more than one day, the player accrues interest on the loan.
So what is a swap? This is a monetary reward credited to the trader on a deposit for using a broker's funds of a market participant, or withdrawn from a trader's deposit in favor of a creditor.
Settlements for financial transactions may include not only Swop, but also broker commissions or a fixed fee for one lot of SWOP Free.
Swop can be:
- negative. When the interest on the loan is greater than the same amount on the deposit;
- positive. If the interest on the loan is less than the interest on the deposit;
- zero. The difference is not calculated, but a fixed commission is charged from one lot.
Migrants of the banking system
The operation has other well-known names:
- Overnight - direct correspondence to the essence - transference through the night; a one-day loan in the middle of the week, and a loan for 2.5 days when applying for a loan on Friday.
- Rollover - the name reflects the property of a loan to change in percentage during the loan term; that is, a variable rate loan. The rate here consists of a constant broker margin and a floating part, depending on market conditions. The last ingredient affects payments on long-term loans.
The terms came to Forex from banking. Monetary and financial transactions of this kind are designed primarily for relations between the Bank of Russia and other banks. Not only individuals intercept a hundred to pay. Sometimes a commercial bank needs free funds for a couple of hours: for example, one client has not yet paid off a loan, and then another came; It is a pity to miss future profits, therefore they are borrowed by the Central Bank of the Russian Federation for a day. Overnight expenses will be repaid by the profit from lending to a new borrower.
Movement by the rules, but bypassing
Swap operations were invented to bypass commodity supply of currency.
The Forex system is one hundred percent - the arena of speculators. Participants strive to earn on the difference in rates, without receiving real currency on deposit.After all, the rules of the international foreign exchange market provide for the obligatory supply of currency to the buyer: I bought 1 thousand euros - please, get this thousand on deposit.
This order has a lot of inconvenience for speculators:
- Slows down the turnover time of funds.
- Transaction payments are increasing.
- The burden of legal support for the transaction is growing.
A forex swap is payments when there is no actual supply of currency and related restrictions. The player either deducts the amount of interest from the account, or credits. The work of a forex trader is carefully facilitated.
Calculation formula
The site of brokers participating in the Forex games has swap tables. They show how the indicators differ in different currencies. The reason is the difference in the rates of the Central banks of the currencies included in the pair.
Let's consider how a swap on Forex is charged.
The calculation formula is as follows:
Swap = (Kat × (Pps + B) / 100) / G,
Where:
- Swap - the desired percentage difference.
- TOat - the value of the contract.
- Rps - the difference in interest rates of the Central Bank of the currency countries.
- B - brokerage commission.
- G - the duration of the year: 365 or 366 days.
Example application of the formula
The player does not independently calculate the difference, the process in the program is automated, but to understand the essence of trading it is worth considering an example of how to calculate a swap on Forex.
1. The speculator acquires a pair of Australian dollar / yen. In this operation, the Australian dollar is bought and the yen is sold. Since the player does not have a yen, and delivery is not implied, the speculator takes Japanese money on credit, on credit.
2. The speculator sells a pair of AUD / JPY. There is an Australian sale and a purchase of the yen. The loan is the currency of Australia.
The rate of the Central Bank of Japan is -0.1% (minus one tenth of a percent).
The rate of the Central Bank of Australia - 1.5% (one and a half percent).
The lot size of the AUD base currency is 100,000 units (one hundred thousand).
Broker commission 1%.
Substitute the values in the formula and get the number of monetary units of the base currency:
Swap = (100,000 × ((1.5 - (-0,1)) + 1) / 100) / 365 = 7.1233 - over longs.
Swap = (100,000 * ((-0.1 - 1.5) + 0.25) / 100) / 365 = -1.6438 - short.
How is the plus or minus sign decoded around the indicator? If the calculation gives a negative result, then the client will have to pay the specified percentage for transferring the position to the night.
A positive value means that the money will be credited to the player. So, choosing a pair based on the ratio of Central Bank rates and taking into account the size of the brokerage commission, you can earn on a swap on Forex.
Broker's Marketing Fantasy
Now that it has become clear what a swap is, the factor of the size of the broker's commission should be considered. All couples are divided into popular and exotic. Popular ones contain the euro, the North American and Australian dollars, the pound, franc, and the yen. The rest is exotic, an increased commission is charged for trading with them. Without broker advertising, we indicate: the operation on the EUR / AUD pair is 1%; here both currencies are in blue chips; operation on a pair of Swiss francs against Danish kroner is carried out at a commission of 10%; Danish kingdom finances - exotic.
Try to avoid brokers with the slogans "we take the costs of the player on ourselves." We must always remember that the broker types of commission - like grains of sand in the ocean. Player service is a source of income. The source should not dry out quickly.
When transferring the commission over the weekend, the commission triples. The market does not work, but the player uses credit money.
Theology as an engine for the development of Forex
A Forex swap is a commission for any market other than Islamic. Usury is not legitimate in all countries of the globe. The religious atmosphere does not allow professing Islam to trade on the Forex, to receive money without investing their own labor. But the desire to increase income is inherent in every person. Therefore, Islamic accounts were invented. They are distinguished by the following properties:
- No swap for transferring positions. With long-term trading, the benefits are obvious.
- Fixed spreads are set to prevent speculative risk.
- No hidden brokerage interest or payments.
The latter is difficult to verify, since the calculation of the broker's commission is not decrypted.
The option “demo account” helps to bypass the concept of “no investment of one’s own labor”. Mastering the basics of trading, applying the rules of trading on a training account, a person learns, and studying in the Islamic world is considered to be work. In addition, in the Muslim world, one cannot voice one’s attitude to trading as a game. Because in Islam, banned easy profits and gambling. A person should psychologically tune himself and convince Muslim friends that he treats exchange activities as work.
Under these conditions, the follower of Islam will avoid three sins: riba (speculation), maysir (gambling) and garar (usury).
Squeeze
A forex swap is an option without which you can successfully trade. Forex broker registers can be sorted by a dozen signs, including the possibility of opening Islamic accounts. For interest, the author scanned the lists on the topic “cent accounts” and found seven offices offering the service.
And at the request of “Islamic accounts”, a list of 117 companies trading on Forex was formed. Feel how popular the service is.
