What does swaps mean
Swaps either get paid or pay just holding a position. 5 pm (EST) or 2 am (Pakistani time ) all accounts are closed and reopened after 1 second if you holding your trade over the night either you get paid or just pay swaps. now we will start the process that how swaps work who drive it so first all you must learn it that Central Banks lend money to Banks at certain annual interest rate. This interest rate is also known as Discount rate. Each country has Different discount rate.
Current Central Bank Interest Rates
- ECB = 0.05 %
- AUD = 2.50 %
- NZD = 3.50%
- CAD = 1.00%
- GBP = 0.50%
- USD = 0.25%
- CHF = -0.750%
- JPY = 0.10%
Interest Rates updated 23th January 2015.
Now I will teach you that how Central banks apply swaps when you place a order and holding overnight this so simple when buying currency with high interest rate it means you will get paid. and when selling Currency with high interest rate you are Paying
For Example Currency Pair AUD/USD
- AUD = 2.50% (Base Currency – You’ll get Paid)
- USD= 0.25% (Quote Currency – You have to Pay)
- AUD/USD = 2.50% – 0.25% = 2.25 %
- Swap for BUY Order.
Contract Size X(Base Currency Interest Rate –Quote Currency Interest Rate +Broker Mark Up) /100 / Days Per year
- Swap For SELL Order.
Contract Size X(Quote Currency Interest Rate –Base Currency Interest Rate +Broker Mark Up) /100 / Days Per year
Now swap formulas with numerical example
Example No.1. AUD/USD for a full Lot $100,000.
If we are buying the AUD/USD.
- 100,000 x ( 2.50 – 0.25+0.15) /100/365
- 100,000 x 2.40/100/365.
- 6.58 Unit s of Base Currency
If we are Selling the AUD/USD .
- 100,000 x ( 0.25- 2.50 +0.15) /100/365
- 100,000 x -2.1/100/365.
- -5.75 Unit s of Base Currency
here I taught more about swap now one thing is very important to understand either we open account with swap or without it.
being muslim we should not open account with it but you must keep in mind that you can earn money with the help of it. may be you are thinking how????? really I’ll tell but very soon,,……..