Glossary‎ > ‎

Swap

The Swap is the exchange of the interest rate between two currencies or the difference between interest rate of two currency pair.
The Swap is positive when by opening a currency position you borrow from lower interest rate currency and buy the higher interest rate currency.
The Swap is negative when by opening a currency position you borrow from higher interest rate currency and buy the lower interest rate currency.
A positive Swap attracts Carry Trades strategy.

Example:

Buy AUD / JPY --> You borrow Japanese Yen and buy the Aussie dollar. The Swap is positive because Aussie dollar has higher interest rate than Japanese Yen Interest rate.
Sell AUD / JPY --> You borrow Aussie dollar and buy the Japanese Yen. The Swap is negative because Japanese Yen has lower interest rate than Aussie dollar interest rate.



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