What Is a Swap Point in Forex?
The Foreign exchange market (Forex) is the market for trading currencies. When a trade is held open at the close of the trading day, that position is rolled over to the next day. These positions are subject to a rollover charge called the swap point or credit.
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Forex Roll Over
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The swap point adjusts the trading (spot) price from the two sets of currencies' fixed interest rate overnight differential, deducting from or adding to the Forex position's original traded rate.
Interest Rate Differential
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While the position is open, you receive interest on one currency (credit) and pay out interest (charge) on the other.
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Swap Feed
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The Tier-1 interbanking swap feed is used to set the overnight interest rate. To make a profit, you must know the swap point based on the interest rate for each country's currency.
Higher Yield
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Swap-point speculation can be based on the higher ask price against the bid price between the base and quoted currencies rate. When the interest rate is higher than the base currency, a higher yield is attained when the position is closed.
Another Term
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The more common Forex term for the swap point is "tom-next" swaps.
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