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[Gomegatron9]

I trade on an MT4 platform and I notice that there is sometimes a monetary ammount (either positive or negative) in the SWAP column. Anyone care to shed a little light on this?
Thanks!
djp

[Cyclon]

Swap is the exchange "interest" or "premium" you are charged or earn on a daily basis for any trades carried (rollover) from day to day and some brokers are waiving this.

It will be based on the yield exchange rates between the base currency (first listed) of the currency pair and the commodity currency (second listed) of the currency pair.

...I think. ...or IS it?

(Secretly we all know that it basically is all tied to the beer money.)


Cheers,
Cyclon

[Pharaoh]

Swap is something you and your wife can do when you meet another couple that you find attra. . . oh, wait, not that kind of swap.



When you open a trade, you sell one currency and buy another. Since the currencies charge different interest rates, you can either collect interest (positive swap) or pay interest (negative swap).

If you borrow a low-rate currency to buy a high rate currency, you should earn interest. If you do the opposite, you pay. If you buy and sell the same pair, you will notice that the amount you get paid is significantly less than the amount you have to pay (more beer money for the broker). Some particularly annoying brokers just figure the negative swap and charge that to you whether you go long or short on the pair.

[Sergei]

I find this to be a very simple and useful way of looking at your account:

Let's say you are trading USD/JPY. If you want to long USD/JPY what you are in fact doing is buying USD with your JPY. However, since you don't actually have any JPY, you need to borrow it first and use a part of your margin as collateral for that loan. Once you have borrowed the necessary amount of JPY, you can use it to buy USD and there is your trade. Now, since you actually borrowed the JPY, you have to pay interest on that loan at the prevailing rate until you have paid back the loan (closed your trade), and since you are holding USD, you are being paid interest on that sum for as long as you are holding it. The difference between what you are paying and what you are collecting in interest is what your swap will come out to be.

Retail brokers don't exactly do the calculations like that but that is what is actually happening (way way) behind the scenes.

[Cyclon]

Originally Posted by Sergei

Retail brokers don't exactly do the calculations like that but that is what is actually happening (way way) behind the scenes.

Excellent depiction, Sergei. So then that must make the beer money part at least three levels deep, like way way way behind the scenes.

Cheers,
Cyclon