Meaning Of Swap In Forex Trading

Meaning of swap in forex trading

Meaning of swap in forex trading

Definition

A forex swap is the simplest type of currency swap. It is an agreement between two parties to exchange a given amount of one currency for an equal amount of another currency based on the current spot rate.

Meaning of swap in forex trading

The two parties will then give back the original amounts swapped at a later date, at a specific forward rate.

The forward rate locks in the exchange rate at which the funds will be swapped in the future, while offsetting any possible changes in the interest rates of the respective currencies.

Thus, this creates a hedge for both parties against potential fluctuations in currency exchange rates.

Forex SWAP - What is Swap Rate in Forex Trading?

This makes forex swaps very useful for multinational and exporting companies.

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