The foreign exchange market referred to the FX market is related to currency pair and Swap Point in Forex. In terms of daily transaction volume, it is the world’s largest market. In layman’s terms, it is the exchange between a certain currency pairs at the quoted price.
With forex CFD trading, you are allowed to participate in the movements of the exchange rate of an underlying forex pair. The main purpose of FX CFDs is to take advantage of the depreciation or appreciation of a currency pair by the exchange between two currencies.
There are so many CFD FX trading tools that can display swap points on trading dates for sale and buy directions. For fx traders, this is a very important tool as interest can be lost or earned when there is overnight held of an FX CFD.
Introduction to Swap Point in Forex
The currency swap points or forex swap points are the difference between the forward rate and the spot rate in a currency pair that is expressed in pips. Usually, this is done for the specific type of currency pair you wish to trade.
In a financial concept called interest rate parity is used as the point calculation. According to this concept, after investing a certain amount of money and having earned returns for various foreign currencies, the comparison with the interest rate should be made without a doubt.
In forex currency trading, this concept is used by dealers by identifying swap points in forex only by considering the net profit or cost when lending and borrowing currencies mathematically over a period time that includes spot value dates and forward delivery.
You can calculate forward rates based on currencies with US dollars with the equation Spot Price X (Foreign Ir + 1) / (US Ir + 1) = forward price. Where Ir Foreign means the counter currency interest rate, Ir US is the interest rate in the US.
The swap point can be calculated with this equation and you can get Swap Points in forex= Forward Price – Spot Price. You can understand the equation and how it works for swap rollover by doing a practical example to calculate fair value.
Rollover Swap in a Currency Pair
Being aware of the interbank deposit rates for each currency pair you intended to work on is very important. You must know the main terms based on the interbank time period. After that, you can calculate the currency pair you wish to work with.
Knowing the currency pair’s interest rates will allow you to calculate further rollover to the next day from the delivery date where you can continue to do business in the future is certainly one of several best examples in the case of rollover swap.
You can also earn and make money on the currency pair with the best forex broker that you bought and hold for a long time only if there is a 0.25% US dollar interest rate for a short period time.
Since the 5% interest rate on the Australian Dollar is short term, there is a short-held currency and the interest rate has to be pay on the currency pair. In the rollovers, the interest rate varies at 4.25% is annualized.
The specific time also can be adjusted by applying tomorrow or net rollover swap for 1 year if you don’t trade rollover. Keeping an overnight position for AUD/USD short, in the interest rate, there will be a variation of 4.25% per annum which is divided by 360 for the dealer as a rollover fee.
The fx trading is very complex and there are so many things to be understood. But, with cooperated with an advanced partner like didimax forex broker, you can trade easily and prepare a good strategy to be successful and understanding many things such as Swap Point in Forex.
