More precisely, swap is the nightly shipping costs that are positive or negative to your account because of the difference between the currency pairs you've made. That is, if you have put the high interest rate of two currencies out of the market and decided to keep the low interest rate in your hand, the cost of low interest rates will be reflected in your account at night.
- Swap operations are entirely based on the lending of the money borrowed from borrowing money.
- With a simple example of buying a pair of EUR/USD, buying a long position, you get the dollar to the market and you get the low interest rate for the euro. This transaction will return to the investor as a negative exchange rate swap. When you sell the EUR/USD, you have to give the dollar to the market, meaning you've bought the dollar. Because you put down a low-interest currency unit, you'll also earn favorable swap revenue.