Spread
It refers to the difference between the London Interbank Interest Rate (LIBOR), which is the standard for international financial transactions, and the actual interest rate.
The difference between the exchange rate when buying and the exchange rate when selling is called the spread.
If the LIBOR at the time of the loan contract is 8.5% per year, but the actual interest rate paid is 9.5% per year, this difference of 1.0% point is called the spread. When a loan is received from a bank, a fee is charged and the interest rate is determined according to the credit rating of the person seeking the loan. there is.
The interest rate referred to here is a spread, which is the same concept as the exchange rate at each exchange office.
Swap
It refers to two traders changing each other's interest rates, currency rates, etc., and can easily be viewed as an over-the-counter contract.
Swap interest is an interest determined according to the interest rate of the country in which the currency being traded is traded.
If you use the currency of a country with a high interest rate to buy the currency of a country with a low interest rate (e.g. buying EUR (3%)/USD (4.75%)), you will have to pay interest, and if you sell it, you will earn interest. And the swap point is determined depending on which interest rate is higher based on EURUSD.
This means that if you borrow money with high interest and buy something cheap, you have to pay that much interest.
Swap Calculation example
The Swap fee paid when holding a USDJPY 1 LOT position for more than one day is
-
For example, the swap point for USD/JPY is -0.24 and
-
Transaction size = 100,000 (1 LOT = 100,000 of base currency)
-
When period (days) = 1
-
Swap calculation = -0.00024 * 100,000 * 1 = -24 JPY
If swap is applied to an account, the currency of the account is USD, and USD/JPY is 123.456,
Ultimately, -0.19 (USD) will be applied to the account every day at (21:59 GMT).