Swap
points
explained
When
opening
a
Forex
trade,
a
trader
essentially
borrows
one
currency
to
buy
another.
However,
each
currency
has
an
associated
interest
rate,
set
by
the
respective
central
bank.
The
difference
between
these
two
interest
rates
in
a
Forex
pair
is
what
makes
a
‘swap
point’.
In
essence,
a
Forex
swap
point
(also
known
as
a
‘rollover
fee’,
‘overnight
interest’
or
‘holding
cost’)
is
the
interest
rate
differential
between
the
two
currencies.
It
is
applied
to
positions
held
open
overnight
and
is
credited
or
debited
automatically
while
being
reflected
in
the
final
profitability
of
a
trade.
Let’s consider an example with a transaction involving two currencies with significantly different interest rates: the Australian dollar (AUD) and the Japanese yen (JPY). The Reserve Bank of Australia (RBA) has set its policy rate at 3.85%, and the Bank of Japan (BoJ) at 0.5%.
Suppose you want to short (sell) AUDJPY at a 97.00 exchange rate and you initiate a full 1.0 lot position. A short one lot position means you sell 100,000 Australian dollars (AUD) against the Japanese yen (JPY). In order to sell something that you do not own, you need to borrow it first. So, you borrow 100,000 AUD and pay interest (cost). Then, you place the Japanese yen (that you bought) in a bank deposit for one day (overnight) and receive interest (income). If the interest rate on the Australian dollar loan is 3.85%, then you pay 10.55 Australian dollars per day (100,000 x 3.85% / 365). If the interest rate on the yen deposit is 0.5%, you will receive 132.9 yen per day (100,000 x 97 x 0.5% / 365), or just 1.37 Australian dollars at an exchange rate of 97.00. Thus, at the end of the day, the trader will incur a swap loss of 9.18 Australian dollars. And this will be a recurring cost every 24 hours. Not a very comfortable situation to be in, is it?
Furthermore, even if a trader decides to trade currencies with relatively similar rates of interest and buy a higher-yielding currency against a lower-yielding currency, the swap rate may still be negative as brokers often add their markup or discount to the interbank swap rates.
Why
the
absence
of
swap
points
at
Octa
Broker
is
so
convenient
For
many
Forex
traders,
particularly
those
employing
mid-term
to
long-term
strategies,
the
accumulation
of
swap
points
can
significantly
eat
into
potential
profits
or
exacerbate
losses.
This
is
where
Octa
Broker’s
‘0%
swaps’
policy
becomes
a
game-changer.
Indeed,
Octa
Broker
has
been
trusted
by
millions
of
traders
around
the
world
precisely
for
its
transparent
trading
conditions,
no
hidden
tricks,
and
honest
and
convenient
trading
without
swap
points.
Here are the benefits of having a 0% swap rate:
-
Reduced
trading
costs
-
Flexibility
in
trading
strategies
-
Simpler
profit/loss
calculation
-
No
unpleasant
surprises
-
Accessibility
for
all
traders
Octa Broker’s commitment to offering 0% swaps on its trading instruments aligns with a trader-centric approach. This transparency is a cornerstone of how Octa builds trust with clients, empowering them with greater control over their trading costs and fostering more flexible strategy implementation. Ultimately, this contributes to a more transparent and convenient trading experience where traders can trust their broker to prioritise their success. For anyone considering holding forex positions for more than a day, the absence of swap points is a compelling advantage worth serious consideration. Along with other conditions benefiting traders, the zero-swap policy is one of the crucial tools that reliable brokers offer their clients to help them successfully navigate the markets.
___
Disclaimer: This press release does not contain or constitute investment advice or recommendations and does not consider your investment objectives, financial situation, or needs. Any actions taken based on this content are at your sole discretion and risk—Octa does not accept any liability for any resulting losses or consequences.
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The issuer is solely responsible for the content of this announcement.
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