Substitute functions on Foreign exchange market is a
multiple opening of two reverse roles with different agreement times, one of
which ends started out place and another one immediately reveals it. Substitute
amount and cost is set at the moment of business performance. It means that it
is a combination of two reverse trades with equal sum of money and different
agreement times. The target of trades is holding an started out place over
night time. Swaps can be good or bad. It is determined by change in prices.
Executing a dealing operation, the bought forex of a
forex pair is taken as a first deposit and the sold one as a credit score. As
no one knows the period of holding a dealing place, first deposit and credit
score accruals are applied when the place is carried over night time.
Substitute accumulation to a dealing consideration or drawback from it is
determined by change between first deposit and credit score prices. If first
deposit amount surpasses credit score one, swap is built up to a dealing
consideration. If credit score amount surpasses first deposit one, swap is
subtracted from a dealing consideration. We will use prices of main banks as an
example for swap computation. So the monthly attention of the European Central
financial institution is 1%, the US Central financial institution – 0.25%.
Purchasing or selling of 1 lot of EUR/USD (in InstaForex – it is 10000 units of
basic forex, in this case EUR) at a amount of 1.2310. Substitute will be: per
year - ((1% – 0.25%) * 10000 * 1.2310) / 100% = $92.325, per day $92.325/365 =
$0.25. If we open a long place (buy) with EUR/USD there is an reverse
situation: borrowing of dollar at 1% yearly and deposit in US dollar at 0.25%
yearly. The money score amount surpasses the first deposit one, so the dealing
consideration will be charged with $0.25 daily.
Carrying over a place from Friday to Friday, a multiple
swap is acrrued/deducted. It occurs because a place started out on Friday has a
agreement time frame on Friday. Carrying over a place from Friday to Friday the
agreement time frame should be increased from 1 day to 3 days till Monday. That
is the reason why multiple swap is credited/deducted. On the basis of attention
rates’ change there is a new appeared dealing technique Carry Exchange traders’
community. This technique is based on getting additional profit in the form of
good trades. It works perfectly with the forex couples which have maximum
change of attention rates: NZD/JPY, AUD/JPY and others.
