- Earning with “Swap Points” and “Exchange Gain”
- What is Swap Point?
- Emerging market currencies have high-interest rates
- Swap Point is credited every day with no limit
- Swap Points occur at the NY market close
- Advantages and disadvantages of swap points
- The Swap Point is for long-term operation
- How to calculate Swap Points?
- Interest rate situation in each country
Earning with “Swap Points” and “Exchange Gain”
In Forex trading, it is common to make a profit from the exchange gain, which is the difference in prices between the two currencies.
Besides this, there is another typical method of making profits in Forex, which is called the swap point.
It is also popular as an asset management method instead of foreign currency deposits for those who have a certain amount of funds, and some big traders actually live on interest rates just by receiving these swap points.
With XM, you can earn from both “exchange gain” and “swap points”, all on XM MT4 and MT5 platforms.
If you read this article, you should have a better understanding of the advantages and precautions of swap points and swap trading, which are also one of the characteristics of Forex trading.
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What is Swap Point?
The swap point is the interest rate differential between two currencies.
Swap points are the difference in interest rates between two currencies, while foreign exchange gains are the difference between the rates of the two currencies.
Each country’s currency has a national interest rate.
For example, the Japanese yen has an interest rate of 0.1%, which is one of the lowest interest rate currencies in the world, while the Turkish lira has a very high-interest rate of about 8.0%.
To earn swap points, you start by choosing a currency pair that combines low and high-interest rate currencies.
By selling low-interest rate currencies and buying high-interest rate currencies, you can open a position where you can earn swap points.
So, for example, if you have a short position of USDTRY, you sell the US Dollar and buy the Turkish Lira, so you will be given swap points caused by the interest rate difference between the high-interest rate Turkish Lira and the low-interest rate US Dollar.
In this way, if you have a position of a currency pair with an interest rate difference, you can keep it without settlement and rollover, and the profit of the interest rate difference will be in the hands of the trader.
All you have to do to earn swap points is to roll over the positions of currency pairs with different interest rates.
Therefore, if you understand the interest rate situation, you do not need any other difficult strategy.
Trades to earn swap points are called swap trades, and many traders carry out Forex trading for that purpose.
On XM MT4 and MT5, there is a number of currency pairs of the combination of low-interest and high-interest rates.
Emerging market currencies have high-interest rates
Emerging market currencies such as the Turkish lira, South African rand, and Mexican peso have high-interest rates and may look very attractive as a target currency for swap trading for Forex beginners.
However, it is not uncommon for these high-interest rate emerging market currencies to crash due to economic reasons such as relationships with other countries, so keep in mind that some knowledge is required for operation to aim for swap points.
Even in that case, compare the high-interest rate and stability, calculate the swap points you can get, and choose the currency pair that suits you.
If you depend on a high-interest rate currency, if the country faces default unexpectedly, the value of that currency will be 0, and as a result, the rollover positions will not return even 1 dollar.
In terms of stability, the NZ dollar and the Australian dollar are popular because they have high-interest rates and are considering raising interest rates.
On XM MT4 and MT5, you can invest in all major, minor and exotic currencies including Turkish lira, South African rand, Mexican peso, New Zealand dollar and Australian dollar.
Swap Point is credited every day with no limit
Swap points can be received as long as you hold a position.
Regarding swap points for weekends and holidays, many Forex companies basically adjust on Thursday or Wednesday so that they can receive the total for the number of days.
With a currency pair of low-interest-rate currency and high-interest-rate currency, you can make profits almost every day, so many people do it in parallel with transactions aimed at ordinary exchange gains.
For example, when trading another currency pair with a large interest rate differential, while purchasing with the aim of foreign exchange gain, you can also aim for profit at swap points.
Even if there is a loss in that position, there is a possibility that the loss can be compensated by giving swap points.
However, if you sell a high-interest-rate currency and buy a low-interest-rate currency, you have to pay swap points, so you should be careful.
On XM MT4 and MT5, you can check out the daily swap points of each currency on the platform directly.
These swap points can change at any time periodically, so make sure to check it often.
Swap Points occur at the NY market close
Swap points can be earned at the time of the market close of New York, the last closing of the day on the Forex market.
The word “rollover” has come up several times earlier, but this rollover is important for getting swap points.
Rollover means carry over to the next day.
For example, suppose you have a position at 8 am Australian time and you settle at 4 am the day after the day changes.
In this case, you will have held the position for 20 hours, but you will not be given swap points because you settled before the rollover.
This is because the position must be rolled over in order for the swap points to be awarded.
So, for example, if you have a position at 8 pm Australian time and settle at 4 pm the next day, you will get swap points.
Even in the same 20 hours, the swap grant will be affected with or without rollover.
Swap points occur after the rollover, but they are not reflected immediately.
There may be a time lag depending on the Forex company, but it often occurs around 7 am Australian time, which is the closing time of New York time.
After that, if the Forex market is daylight saving time, the closing time of New York time will be one hour earlier, so you can get the swap points a little earlier.
Swap points are a type of Forex trading where you can easily make a profit by having only one position.
In case of XM MT4 and MT5 platforms, the server time (the displayed time) is set to GMT+2 or 3.
Advantages and disadvantages of swap points
In this chapter, we will explain the advantages and disadvantages of swap points.
It is a swap point that you can receive just by holding a position, but let’s also understand that there are risks.
1. Earning swap points involves relatively less risk
Swap points are a relatively low-risk trading method.
High-interest rate currencies are often high-interest rates for a long time, and low-interest currencies’ rates rarely rise sharply.
You can make a profit just by holding a position, so you can make up for the loss in other positions in the future, as explained earlier.
Also, if you make a profit in another position, you can add the profit efficiently, and it is recommended for those who want to surely accumulate a small profit.
With XM, you can also see past price quotes, market trend and the current movement in real time.
Everything you need for risk management, XM provides for free.
2. Swap Points don’t require difficult Forex market analysis
On the other hand, swap points can be profitable from interest rate differentials, eliminating the need for such analysis.
The policy interest rates of each country may change, of course, however, even if the policy interest rate is changed, it is unlikely that the interest rate will change at that moment.
Earning swap points is also recommended for those who cannot stick to the chart screen all the time during trading.
3. Earning Swap Points isn’t a competition
In order to make a profit from foreign exchange gains, we must pay attention to the speculation and speculative movements of other traders and trade in consideration of those movements.
There are also traders who take positions in anticipation of the movements of many traders, so it is necessary to compete with many traders.
Swap points can be earned just by holding a position.
So it doesn’t really matter how other traders behave in the Forex market.
It’s almost always like you’re in a position to make a profit.
4. Swap Points could be less than exchange loss
Swap points are stable and easy to make profits, but for the same currency pair, the profits you can earn are generally fixed.
Therefore, the amount is small compared to making a profit from foreign exchange gains.
No matter how low the initial cost of foreign exchange gains, you can also make big profits by fluctuating rates.
Swap points have a strong meaning of supporting trades aimed at foreign exchange gains, and it can be said that the investment of interest rate is a little poor on its own.
In addition, swap points are awarded per lot, so the more positions you have, the greater the amount you will be awarded.
But at the same time, the risk of loss increases.
This is because you must have a large position in order to earn swap points.
When swap points are given by having a long position, if the market price goes up, profits will be generated even with foreign exchange gains, and profits will also be generated with swap points.
However, when the market price goes down, there will be a foreign exchange loss, and the swap points given will make up for the loss to some extent.
It is good if the amount of exchange loss is smaller than the total swap point, but if the amount of exchange loss is larger than the total swap point, there are cases where the swap is not very meaningful.
For example, when the market price moves significantly in a short time due to some news.
Even if a swap is granted, it will be canceled out and a large loss will be incurred, and the swap point granted will be nothing.
Swap points are attractive, but it’s important to keep in mind that the impact of currency fluctuations on profit and loss is greater than the consequences of having a position.
5. You might get numb to market trends
Swap points don’t need much market analysis to make a profit.
But if you think only about swap points when you trade for foreign exchange gains, it is difficult to grasp the movement of the FX market and you can not keep up with the flow.
Also, you will have less time to study the Forex market.
It also leads to the most important money management in Forex, knowledge of profit-taking and stop-loss, and loose thinking about the danger of leverage.
6. Swap Points can be a cost
You can earn swap points by selling low-interest-rate currencies and buying high-interest rate currencies, but if interest rates reverse, you will pay swap points.
When there is a clear interest rate difference, such as the Euro and emerging market currencies, it is unlikely to happen.
However, if the currency has large fluctuations in interest rates, it is possible that interest rates will reverse and losses will occur.
In the case of Euro, it is necessary to be aware that there are many cases where swap points are deducted by having a short position because of the low-interest rate.
Swap points can be profitable without the need for difficult knowledge, but they tend to be less suitable for improving your skills as a trader.
The Swap Point is for long-term operation
Swap points are recommended for long-term FX operation.
The more you hold it, the more swap you will accumulate, making it suitable for long-term operation.
However, high-interest rate currencies carry the risk of large fluctuations in the exchange rate due to political instability.
Even when opening a position for long-term investment, consider investing with some fundamental consideration.
If you set the leverage to low, you can rest assured that it will not be a stop out (liquidation of all positions) in a few moment.
In addition, by holding a fixed amount of high-interest rate currency in small amounts each month, it is possible to accumulate swap points while absorbing exchange rate fluctuations using the cost averaging method.
For long-term investment, consider an investment method that gradually builds assets with a small transaction volume such as 10,000 currencies (units).
For traders who cannot receive interest (swap points), XM offers Islamic swap-free account.
This account type is prepared only for traders with Muslim faith.
How to calculate Swap Points?
In this chapter, we will explain how to calculate swap points, and how much can swap points be accumulated.
The daily swap point can be calculated by the formula of 1 year swap point ÷ 365.
1-day swap points = 1-year swap points ÷ 365
Swap points for each currency offered by Forex companies are often for this one day.
Most Forex companies offer the amount when they hold 100,000 currency pairs.
The swap point for one year is FX rate x number of currencies held x interest rate difference.
1 year swap point = interest rate x number of currencies held x interest rate difference
Since the FX rate and the number of currency units are related, you can see that the number of swap points earned changes daily.
Currency price movements are relevant because the amount of the rate is related to the way swap points are calculated.
Therefore, in reality, you cannot calculate the swap points you can earn without checking the FX rate.
To calculate swap points and also exchange gains and losses, you can use XM’s online calculator in XM Official Website.
Interest rate situation in each country
To earn swap points, you need to select a currency that is suitable for earning.
In this chapter, we will explain in detail the currencies that are easy to earn swap points.
Also, keep in mind that there are risks, even if the currency is suitable for swap points.
Turkey’s policy interest rate has risen sharply since May 2018, and as of July 2018, Turkey has an astonishing interest rate of 17.75%.
The Turkish lira has always been one of the most popular in the popularity ranking of high-interest-rate currencies.
Interest rates are very attractive, but the Turkish lira continues to fall due to continued political instability due to frequent terrorist attacks and worsening relations with the United States.
Therefore, if you continue to hold a long position, you cannot deny the possibility that your principal will decrease.
In a situation where the lowest price is being updated, it is difficult to decide when to build a long position.
In such a case, why not consider investing with the image of diversifying risks with a diversified investment such as the cost averaging method and gradually accumulating it.
Leverage should be lower and slowly increase long positions while watching the situation.
The Turkish lira introduced at the beginning has a very high-interest rate of 8.0% compared to the New Zealand dollar and the Australian dollar, making it a currency that attracts a lot of attention from Forex traders aiming for swap points.
It is also an emerging market currency, and it is positioned as a minor currency with a small amount of trading volume and participants in FX.
As with the Brazilian real, emerging economies tend to set high-interest rates just to get in from the outside, which makes them a very suitable currency for swap trading.
However, emerging market currencies are also called risk-on currencies and are basically high-risk and high-return.
Only when the market is stable will more traders go to take risks, making it easier to trade.
As of July 2020, the policy interest rate is 7.75%, and the Mexican peso is increasing its presence as a high-interest rate currency.
The Mexican peso was on a downtrend due to the influence of President Trump’s movement, but the price is on a recovery trend after raising the policy interest rate by 0.25% on June 21st.
It is the second most attractive high-interest rate currency after the Turkish lira, and expectations are being raised that it is about to be in a good condition for long-term investment.
3. South Africa
South Africa is a country blessed with abundant resources such as gold and is known for its remarkable economic development.
South Africa’s policy rate is 6.5% as of 2018 and is declining little by little, but South African Rand is one of the most attractive currencies in the world.
Among the current major high-interest rate currencies, the policy interest rate is second only to Turkey and Mexico, so why not consider holding a position without increasing leverage too much?
South African Rand boasts a high policy rate.
Interest rates are volatile and can exceed 20% when high, so if you combine them with low-interest rate currencies, you can make big profits with swap points.
South African rand is famous as a resource-rich country, and many mineral resources such as gold and diamonds are produced.
Another feature is that the price of gold and the South African rand are linked.
It is a very suitable currency for aiming at swap points, but it has much political and economic instability and is characterized by severe exchange rate fluctuations.
In order to operate it, it will be necessary to analyze the FX market well.
4. New Zealand
New Zealand is a resource-rich country, but it has been affected by President Trump’s protection trade policy.
Economic growth is weakening as the deterioration of the US-China trade casts a shadow.
As of 2020, the policy interest rate remains low at 1.75%.
If the economic situation does not improve in the future, it is likely to remain weak for a while.
The New Zealand dollar is a resource-rich currency of Oceania, which is classified as a developed country currency and is characterized by a modest price movement.
Government bonds are highly evaluated, and there are no major fluctuations in the policy interest rate, so it is suitable for swap trading for Forex beginners, but the interest rate is 1.75%, which isn’t a greatly a high-interest-rate currency.
Therefore, it can be said that it is a currency that can steadily accumulate profits.
For the New Zealand dollar, it is important to pair with a currency with the lowest possible interest rate so that you do not have to pay swap points.
Australia, a resource-rich country, is popular as a relatively stable currency among high-interest rate currencies.
The current interest rate situation is quite similar to New Zealand.
The currency of Australia is also affected as China, its largest trading partner, is in trade conflict with the United States.
The current policy rate remains unchanged at 1.5%.
It is a country that wants to keep an eye on future trends.
The “South Africa, New Zealand, and Australia” introduced so far are said to be unlikely to plummet in the future as resource-rich countries.
Like the New Zealand dollar, the Australian dollar is the currency of developed and resource-rich countries in Oceania.
As it is a neighboring country, its characteristics are very similar to the New Zealand dollar.
The movement of the Forex market is stable, and it is very famous as a currency that can earn swap points with relatively low risk.
As with the New Zealand dollar, the interest rate is 1.50% as of 2020, so you can’t expect a big profit.
In addition, the interest rate of the Australian dollar is declining year by year, and it is no longer recognized as a high-interest rate currency.
It should be noted that Australia has a close economic relationship with China, so it is important to keep in mind that the Australian dollar is vulnerable to the release of Chinese indicators.
Japan, whose policy interest rate does not rise easily, still maintains the world’s leading ultra-low interest rate of 0.10%.
Most cross-yen currency pairs have long positions and positive swap rates.
You may want to pay attention to whether there will be a rate hike at some point.
Countries with lower interest rates than Japan include Europe, Switzerland, and Sweden.
The policy interest rate in the United States is gradually rising.
The interest rate recovered to the same level as Hong Kong and New Zealand, and the policy interest rate became 2.00%, which is a high-interest rate.
When you have a buy position, you also get a fairly large swap point.
However, when holding a short position, if you hold it for too long, you will get a lot of negative swaps, so it is a currency that you should be careful about.
The European policy rate is currently 0.00%, as there is no interest at all.
Since March 2016, the zero interest rate has remained unchanged, but Euro pairs have a slightly higher interest rate, so holding a buy position will result in a negative swap.
It is the world’s largest currency in terms of trading volume and is the unified currency used in the EU region of Europe.
The interest rate as of 2020 is 0.00%, which is an ultra-low interest rate currency lower than any other currencies.
Due to the large volume of trading, the price movement of the FX market is very stable.
If you aim for foreign exchange gains in different positions and swap points with currency pairs involving the euro, you will be able to make profits efficiently.
You can’t expect to make a big profit at the cost of small price movements.
In recent years, it is said that the sense of stability has been declining due to the withdrawal of the UK from the EU.
It is important to note that the movement is easily influenced by news related to the political economy of EU member states.
The basic idea of swap points is that the higher the interest rate currency, the higher the amount of money you earn, but the higher the risk.
Swap points are basically not big profit transactions, so using a well-balanced currency such as the Australian dollar or the New Zealand dollar will increase the certainty of profits.
The pound sterling is also popular as a high-risk, high-return currency for trading aimed at foreign exchange gains.
Among the major currencies, it has high liquidity and there are many speculative movements aimed at violent price movements, so it is a currency that needs attention.
The price movements are so large that it is a currency that is likely to make big profits if the timing is right.
Of course, you can incur significant losses if otherwise.
The pound’s interest rate as of 2020 is 0.25%, which belongs to the low-interest rate currency group.
We recommend that you trade the pairs of the Australian dollar or New Zealand dollar, which are stable at high-interest rates.
Forming a currency pair with an emerging market currency is dangerous because it is difficult to predict even for Forex advanced players.
So far, we have explained various things about swap points, now you may have understood the mechanism and advantages and disadvantages?
Swap points are a way to make a profit with very little risk.
However, if you choose the wrong currency pair, or if you do not study it carefully, you may lose a large amount of funds.
It should also be remembered that since swap points are a type of profit that subsidizes foreign exchange gains, very few traders are only earning swap point profits.
Therefore, it would be better to hold a position where you can aim for swap points as insurance while aiming for foreign exchange gains.
It is true that swaps are a lower hurdle for beginners than Forex trading, which aims for foreign exchange gains.
However, it is difficult to make a profit from swaps alone, and the main thing is foreign exchange gains, so it’s a good idea to think about swaps as a bonus.
Are you a beginner in the Forex market?
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