The interest credited or charged for holding a forex position overnight, based on the rate difference between the two currencies.
When you hold a pair past the daily rollover (5 p.m. New York), your broker applies the interest differential. Long the higher-yielding currency earns swap; long the lower-yielding one pays it. Wednesday rollover is usually tripled to cover the weekend.
Swap is small per day but adds up on swing-trading positions and is the mechanism of the carry-trade.
Example: long 1 standard lot of AUD/JPY might earn $8 per night; short the same pair might cost $11 per night. Over a month that is roughly $240 earned or $330 paid.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Contango and backwardation. A futures curve shows what buyers will pay for delivery in one month, two months and so on. When later contracts cost more than the spot price the curve is in contango; when they cost less it is in backwardation.Rolling a futures position forward. Every futures contract has an expiry date, so a trader who wants to stay in the market closes the front-month contract and opens the next one. That swap is the roll, and the two contracts rarely trade at the same price.
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