Overview
Common objectives of trading an FX swap are to hedge exposure from currency risk or to modify the value date of an open foreign exchange position.
An FX swap is a simultaneous purchase and sale, or vice versa, of one currency for another currency with two different value dates; two parties agree upon a currency exchange on one day and simultaneously agree to unwind or reverse that transaction on a specified date in the future. More specifically, an FX swap includes two legs. It is a combination of either a spot and a forward position, or two forward positions:
- In the first leg, a notional amount of currency is either bought or sold against another currency at a specified price on an initial date. The initial date is referred to as the near date.
- In the second leg, a notional amount of currency is then simultaneously bought or sold against the other currency at a specified price on a specified date in the future. The date in the future is referred to as the far date.
An FX swap effectively results in little exposure to fluctuations in the prevailing spot rate, since although the first leg opens spot market risk, the second leg immediately offsets it. An FX swap is commonly used for hedging exposure from currency risk, or to modify (or “roll forward”) the value date of an open foreign exchange position.
Trading Example
Example 1: Hedging exposure from currency risk
A Swedish company is long EUR from sales in Europe but operates primarily in Sweden using SEK. The company needs to pay suppliers based in Germany, in EUR, in one month.
To mitigate the currency risk, the company enters into a one-month swap selling EUR and buying SEK at the spot price, while simultaneously buying EUR and selling SEK one month forward.
Example 2: Modify the value date of an open position
A trader has an open short (sell) EURUSD spot position. The trader would like to keep this position open for at least one month and does not want to roll the position forward each day.
To modify the value date, the trader enters a one-month swap buying EUR and selling USD at the spot price, while simultaneously selling EUR and buying USD one month forward.
Trading Conditions
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Instruments |
Available for trading in 130+ currency pairs, plus gold and silver. |
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Tenors/ Maturity |
Tradable tenors from Spot (“T+2”) to 1 year. |
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Amount |
Available for up to EUR 25,000,000. Uneven amounts on the near leg and the far leg are not supported. |
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Price |
Expressed in pip terms of the 2nd currency. |
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RFQ |
No RFQ |
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Spread |
Defined as the distance between the bid/ask swap price, which can vary depending on market liquidity and conditions. |
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P/L |
Can be followed in the account summary, listed in the 2nd currency (i.e. USD for EURUSD). |
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Margin |
FX spot margin requirement + Interest rate margin requirement. For more information click FX Forward Margin |
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Orders |
Fill or Kill ("FOK") market order or limit order. Fill or Kill means that the order is filled in full immediately or rejected if it cannot be filled in the full amount. Partial fills are not supported. |
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Netting |
When the value date of an open forward outright position equals the current spot value date, it will be treated as a normal spot position. From that point on, positions held at the end of a trading day are rolled forward to the next available business day. |
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Opening Hours |
Open for trading 24/6 |