Tickmill has the Optimal Swap Points condition
Tickmill has added more market liquidity for its traders, and have successfully tightened the minimum spread to 0.0 pips and also optimized the swap points across Forex and CFD instruments.
Now Tickmill’s MT4 trading platform offers the optimal trading condition for any types of traders who trade short, medium and long terms.
Take advantage of Tickmill’s better swap rates and reduced spread, to increase your profit rate today.
Do you know how you can make profits from swap points?
Since swaps are caused by interest rate differences between the two currencies, differences in policy interest rates in different countries affect swaps.
Therefore, if you buy a high interest rate currency, the amount you can receive will also increase.
Today, Turkish lira, Mexican peso and South African rand are among the high interest rate currencies.
You can find out more about Tickmill’s update on spread and swap points, in the article here.
What is Swap Point in Forex?
It is often thought of as an interest rate in foreign currency deposits, but swap points are profits that can be expected because of FX, and the mechanisms that occur are also very different.
Here are the basics.
In the FX market, if you sell a currency of a country with an extremely low interest rate such as Japan and USA, and buy a currency of a country with a high interest rate level such as Turkey, Mexico or South Africa, a profit called a swap point will settle your position.
You will get this swap points every day.
Swap points are also called “interest rate adjustments” (or overnight financing) and are profits generated by interest rate differences between two countries.
Conversely, if you buy a currency with a low interest rate country and sell a currency with a high interest rate country, cost of differential swap points will occur.
Example of Forex trading to earn Swaps
For example, let’s say you sell Japanese yen in the Forex market and buy Mexican peso, which is a high-interest currency.
Japan’s policy interest rate is about 0.1%, while Mexico’s is 7.25% (as of January 2020).
There is an interest rate difference of more than 7% between the two countries, and you can receive swap points while you are holding a position.
However, the actual swap point does not exactly match the difference in the policy interest rate, and there are differences in the figures depending on the Forex broker.
If there is no change in the swap points, and if you have held a position (open position) for selling Japanese yen / buying Mexican peso for one year, that alone will bring you about 300 USD.
It will be calculated so, however, in order to hold a 100,000 currency position with 1:1 leverage, the required margin of about 600,000 yen (6 yen x 100,000) which is about 6000 USD will be required when calculated with Mexican peso = about 6 yen.
On the other hand, if the leverage is 500 times, it is about 12 USD, if it is 1000 times, it is about 6 USD, and if it is 2000 times, it is possible to obtain the same profit with margin requirement of less than 3 USD.
In other words, leverage will allow you to earn swap points more efficiently.
In addition, in the case of Tickmill, the leverage is up to 1:500, so you can increase the trading volume by 500 times on Tickmill MT4.
Speaking of FX, there may be an image that the mainstream is the case of aiming for exchange gains through short-term trading such as day trading.
However, in reality, not a few investors are investing for swap points through a medium to long term span.
Merit of earning Swap Points
The advantage of swap points is that you can make a profit every day until you settle and close that position.
The gain on the increase in stock investment cannot be obtained unless it is sold at a time when the market price rises above the bid price, and even if the dividend is paid, it is paid only semi-annually or annually.
However, FX’s swap points do not need to be bought and sold, and they are continuously accumulated in the trading account.
In the past, the monthly distribution type mutual fund, which you can receive the part of investment income every month, was popular, but swap points’ profits come in more frequently than that.
Why Swap Points are different by brokers?
Swap points will be given for the day when you carry over the position after the next day.
In other words, if you settle in the day trade without carrying it overnight, you will not get swap points.
In foreign exchange transactions, it is stipulated that the currency and payment will be delivered after 2 business days.
Depending on the FX broker, there will be a time lag before the swap points are actually reflected in the account balance, but Tickmill displays all swap points in real time, so you can rest assured.
Swap points are not always constant and they change day by day.
The fact that the levels of swap points differ considerably depending on the currency pair is due to the difference in interest rates.
Also, even for the same currency pair, there are differences between Forex brokers, but it will be largely because of the differences in the policies of each broker.
The characteristic of the swap points unique to Tickmill is that Tickmill offers higher swaps than other brokers.
Many Forex brokers set the payment amount larger than the received amount of swap points, but Tickmill adopts a mechanism that does not obtain a profit difference between the paid amount and the received amount from the swap point, which results in lower cost to the traders.
Which currency pairs have higher Swap Points?
Looking at the policy rates of the major countries, emerging countries such as South Africa, Mexico, and Turkey have particularly high interest rate.
South Africa has 6.25%, Mexico 7.25% and Turkey 11.25% (as of January 2020).
Currently, the average interest rates on fixed deposits at major banks are around 0.01% (as of January 2020), and the interest that can be earned by depositing 1,000 USD one year later is only about 10 cents.
While straight-forward comparisons to these principal-guaranteed products are violent, there is no doubt that swap points in high interest rate currencies are very attractive.
What should you be aware of Swap Points?
However, there are some demerits to the attractive swap points, and if you don’t recognize them properly, you may not only get swap points, but you may also suffer losses.
One of the points to keep in mind about swap points is that the swap points will become negative when the pattern of “selling high interest currency and buying low interest currency” is occurred.
In such a case, on the contrary, the investor will have to pay the interest rate swap point.
If you sell emerging currency pairs such as South African rand, Mexican peso, and Turkish lira as mentioned above, you will have to pay for high swap points.
Probably, the selling of these currency pairs is supposed to follow the market price, but considering the risk of negative swap points, it may be safer to stick to short-term games.
In addition, even if interest rates are high right in front of you, there is a risk that interest rate gaps will narrow and swap points will also decrease, depending on the economic conditions and monetary policy of each country.
And above all, it should be kept in mind that exchange rates in high interest currencies tend to be volatile.
If you use a particularly high degree of leverage and the amount of free margin will decrease as a result of foreign exchange losses, the risk of stop out eventually increases.
If this happens, there is a risk that you will lose more than the swap points you received.
Some tips to earn more Swap Points
Here, we have summarized some tips to earn more swap points efficiently.
If you firmly follow these three, you may be able to practice the Forex trading for swap points more steadily.
1. Choose a currency pair with a narrow spread
Even if you can expect a large amount of swap points, the transaction cost can be heavier if the spread is wide.
Even if the exchange rate does not fluctuate, the exchange loss is caused by the amount of the spread, and the swap points are reduced.
Before you start trading, check how much spread is the difference between the selling price (the exchange rate applied when selling a currency) and the buying price (the exchange rate applied when you buy a currency).
And it’s a good idea to choose a currency pair with a narrow spread, which is also expected to have a relatively high swap point.
2. Diversify currency pairs to invest
Even if a swap point is obtained, if there is a further foreign exchange loss, there won’t be any profits.
To mitigate such risk, it would be wise to make diversified investments in multiple currencies.
Not only due to foreign exchange loss, but there is also a possibility that the swap point will decrease due to the revision of the policy interest rate.
Diversified investment is effective in dealing with such risks, and even if the profit of one currency pair decreases, it can be expected to be covered by the profit of another currency pair.
3. Check margin level diligently
Due to the loss you made in the account, if the balance of the account falls below the minimum required margin amount, stop out will be executed and all positions will be closed, resulting in loss exceeding the swap point you have received.
To avoid this, you should always check your account balance and the margin level.
Given the history of foreign exchange market crashes such as the Lehman shock, it is generally accepted that it is safe to keep the margin level at least 250% or more, preferably 300% or more.
When making medium- to long-term investments aiming for swap points, it seems safe to keep the margin maintenance rate as high as possible.