Lesson 6.1: What is swap in forex trading?

– Hey everybody, welcome.

We're adding a little lessonin between other lessons.

We're recording this later on so maybe I was wearing a tie and the last lesson and maybe I'm gonna be wearing a tie in the next lesson but I,I remember that I forgot to tell you about swapinterest or rollover.

These terms or synonymous with one another and they are usedinterchangeably in the world of currency trading or FX trading.

Swap is the interest paidat the time of rollover.

Everyday the currencymarket sort of rolls over.

At about 5:00 p.

M.

, Iwas being really careful this time Nate to draw slowly.

– [Nate] Maybe it's'cause you're zoomed in.

– Yeah, maybe it was because I zoomed in.

I gotta wait til that thing disappears.

At about 5:00 p.

M.

eastern U.

S.

time your FX dealer will roll your trades over.

You will not probablysee anything different about them but you've carried a trade from one day into the next.

Sometimes this is alsoreferred to as carry as in the carry trade oryou've carried a trade from one day into the next.

Alright, so what is this? Inside of your platformwhen you take a trade, and we'll view the terminal window inside of Meta trader here, one ofthe items that you're going to see in your terminalwindow on the right side inside the terminal window, part of your open trade is swap.

Swap is the interest that you either earn or the interest that you pay for holding on to a trade overnight.

Generally you will notearn or pay anything if you do not hold thattrade through 5:00 p.

M.

Eastern U.

S.

time or whatevertime your broker uses.

But some dealers willcharge or pay interest on a minute by minute basis.

Check with your ForX dealer to find more information about that.

Why do they do that? Well, in the big world of trading every central bank around the world has an interest rateand you could see this on the nightly news,especially the business news.

Central banks set base interest rates.

So a central bank in Australia might have a 6% interest rate.

A central bank in Japan, the Bank of Japan might have a 0.

25 interest rate.

Nate, I know this is obvious,but which number is higher? – [Nate] Six.

(giggling) – The six is higher so this is Australia.

This is Japan.

So if you're playing along at home, let me ask a question.

I'll ask it to Nate and youcan take a moment to answer.

If you buy the Australiandollar/Japanese yen and you hold it overnight, will you earn interest or pay it? – [Nate] You're gonna earn it.

– You're gonna earn itbecause the Australian interest rate is higher.

Now the reason this is, this exists is a mystery to almost everyoneand it's been forgotten.

But in the old days, youwere holding on to something overnight in your bankaccount and you'd get paid interest on your holdingsjust like you would and on an annualized basis.

You'd get paid a little bit of interest to holding on to a high interest pair against a low interest pair.

If you're holding a high interest pair against a high interestpair, you might even get charged a little bit of interest.

If you sell the Australiandollar/Japanese yen you're short the Australiandollar and you're buying Japanese yen.

In that case, you're going to pay interest if you hold that trade overnight.

For simple calculations on swaps, you can go to Fxswap.

Oh, it's not doing anything,you can type into Google.

I'll just write it down here for you.

You can type in fxswap and, I have to write slowly so it doesn't move the monitor.

FX Swap calculator anda series of websites will come up and youcan say, oh I'm buying the U.

S.

dollar/Japaneseyen or I'm selling the British pound/U.

S.

dollar and you can type in your trade size.

– [Siri] Okay, I found this on the web.

– Siri thought I was talking to– – [Siri] Buying the U.

S.

dollar.

– Do you hear this?(chuckling) Siri was just answeringnothing that I asked her.

Oh, that's pretty funny.

If you Google that, youcan find calculators that will show you the overnight rate that you get paid or charged.

Generally, this is a small amount of money and it does not mean alot or factor in to your trading unless you'reholding onto something for a very, very long time.

Wanna thank Forest Park FX our sponsor.

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Terms and conditions will apply.

We'll see you in the next one.

Source: Youtube

Lesson 6.1: What is swap in forex trading?

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