What is “EUR” the major currency?
The euro, also known as the “European Unified Currency,” is adopted as the national currency by 19 of the 28 countries currently in the EU (European Union).
It is the currency with the highest trading volume after the US dollar, and the combination of the EUR/USD has the characteristic that it has the highest liquidity (high trading volume) of FX currency pairs.
The currency code for the euro is “EUR”, and the currency pair for the US dollar is “EUR/USD”.
Since they are traded in combination with various currencies, many traders trade only with “euro-related” currency pairs by understanding the economic situation in the euro area as a fundamentals analysis.
Tifia, an online Forex and CFD broker also provides all the EUR related currency pairs with narrow spread and the optimal swap points.
How you can earn Swap Points on EUR pairs?
Even if the euro holds the currency pair “EURJPY”, which has a low interest rate, the swap point cannot be expected because there is almost no interest rate difference with the JPY.
This is because the Euro interest rate is about 0.00%.
The policy interest rate of “0.00%” is due to the zero interest rate policy (a policy that activates the distribution of funds by setting the short-term interest rate to virtually 0%).
However, it is possible to target swap points with other currency pairs instead of JPY.
For example, in the case of “USD” which is a combination with the US dollar, a swap point is attached to the selling position due to the interest rate difference with the US policy rate “1.25%”.
Depending on the Forex company, swap points of about 8 to 9 dollars per 100,000 currencies will be given at places with high grant rates, so it can be fully used for “swap purposes”.
Swap points tend to focus on high-interest currencies such as Turkish lira and Mexican peso, but the euro is attractive as a “low-interest currency” that is a combination of “low-interest x high-interest” currencies.
In this way, depending on the state of the interest rate differential, you can use swap points even in the euro by utilizing the fact that “swapping points can be added to selling positions”.
Tifia offers up to 1:500 high leverage, thus it can help you increase the trading volume which leads to higher swap points.
Which EUR currency pairs are recommended?
Currently, the EUR/USD currency pair will be a particularly attractive candidate.
At present, the US policy interest rate is as high as 1.25%, and the swap rate is high in combination with the euro zero interest rate policy.
Furthermore, the currency value is stable due to the fact that there is a large volume of transactions among all currency pairs.
When earning swap points for a long period of several months to several years, it is important that “stability of currency value” and “low risk of foreign exchange fluctuation” are important, so it is the EUR/USD that satisfies both conditions.
Let’s also see other EUR related currency pairs below.
- Major currency pairs – EUR/USD
- As the pairs are major currencies, price movements and transaction volumes are stable. Swap points also tend to be relatively high.
- Almost zero swap currency pairs – EUR/JPY and EUG/GBP
- It is not suitable for swap transactions due to low swap points. Also, due to the high volatility of the pound, the risk of stop out when holding a position for a long time is high.
- A relatively calm currency pair – EUR/NZD
- For the past 10 years, it has been a range price of about 1.5 to 1.8 NZD, and the price has been relatively stable. There are some lack of liquidity, but it is not a disadvantage when earning swaps for a long time.
- Risky currency pairs – EUR/AUD
- EUR/AUD with high level of sell swaps, you can expect sufficient annual swap points. However, there is a risk of exchange rate fluctuations due to the characteristic of the price movements being rough and volatile and liquidity not being stable.
With Tifia, you can trade all of the above EUR related currency pairs, so you can choose the Forex currency pair which suits your trading style.
Swap Point Arbitrage Strategy
For example, holding both buy and sell positions at the same exchange rate of EURUSD (for example at 120 USD) is called “Hedging”.
Even if the exchange rate fluctuates, the profit and loss total will be almost zero by hedging the positions.
For example, if the EURUSD is depreciated at and 1 cent falls,
- An unrealized loss of 1,000 USD for a buy position of 120 USD
- An unrealized gain of 1,000 USD for a selling position of 120 USD
Therefore, the profit and loss total is zero.
At this time, the profit and loss total due to price movements becomes zero, but the swap point can be in a state where there is a difference between the buy swap and the sell swap.
For example, in two Forex companies, set the swap points when EURUSD is set at 1.20 dollars each (100,000 currency each).
- Company A’s buy swap is -3 cents
- Company B’s selling swap is 5 cents
In the above example, you can get “2 cents” as interest rate.
In this way, obtaining the profit of the swap point while suppressing the loss due to price movements is called Swap Point Arbitrage.
Therefore, when using two Forex companies, it is possible to maximize profitability by selecting “Forex company with high buy swap” and “Forex company with cheap sell swap”.
In case of Tifia, there is no restrictions of performing “Hedging” on live trading accounts.