requires USD in 5 months time. Speculators trade in the Forex marketplace by buying or selling the relative value of one currency to another. So how does swap relate to rollover? Now, If you buy EUR/AUD pair (means you buy euro while selling AUD) and hold it for overnight, then you are buying low yield currency and selling high yield currency. If you have a short position (sell) and the first currency in the currency pair has a higher overnight interest rate than the second currency, you lose the difference.
Currency Swap vs FX Swap, swaps are derivatives that are used for swapping cash flow streams and are used in most instances for hedging purposes. This is why it is also called as rollover fee. It is called the forex currency market (also known as the forex capital markets, the forex market, the currency exchange market, the foreign exchange market, or simply "fx. See Also: What is Leverage and Margin Trading? Dollar, which in turn was pegged to the gold standard. A forex swap is an agreement between two parties to exchange a given amount of foreign exchange currency for an equal amount of another forex currency based on the current spot rate. Nevertheless, these two derivatives are different to one another in that a currency swap exchanges a series of cash flows (interest payments and principles whereas in a FX swap involves 2 transactions; sell or purchase at the spot rate, and repurchase or resell at forward.
The Simplified Description: Now Im going to simplify the term for you. This difference of interest rate is actually known as the " carry ". Margined Forex and CFD trading are leveraged products and can result in losses that exceed deposits. And since each currency trade is done by borrowing one countrys currency to buy another, you can be receiving or having to pay interest. SoftwareForex trading software is a growing component to the Forex industry.
A forex swap rate is defined as an overnight or rollover interest (that is earned or paid) for holding positions overnight in foreign exchange trading.
Forex, swap offers forex traders an extra dimension of profitability.