In media reports you can often hear about swaps. Swap – what is it? Swap is a transfer, so you can translate this term from English. Before the emergence of the international currency market, the Forex market, swap transactions were used in the banking sector. Then swap transactions began to be actively applied in all financial markets. By conducting swap transactions, participants in commercial transactions tried with the help of swap to profitably exchange currency. But it happened that not all participants in the transaction were available currency in the amount to be sold. Therefore, a transaction was carried out with the help of which it would be possible to make a mutual settlement, but after some specified time.

Features of swap transaction formation

Swap transaction object may not necessarily be currency instruments. It can be any financial asset or even a liability. But swap is always called the exchange of values ​ ​ over a certain time period. The swap transaction lasts in two stages. At the first stage, the initial exchange of financial assets is carried out, during the second – the transaction is closed, the borrowed financial assets are returned. A swap transaction means that the parties to a contract must transfer a specific financial asset to another (specified) financial instrument within a specified time (exact date). For example, a swap transaction opens on Monday, and Wednesday is indicated on the day the settlement transaction is completed. In case of transfer of transaction still on the day, the day of final settlement will be considered Thursday. There may be a swap difference between financial assets. This is the ratio of the value rates of the two financial instruments. It is considered more profitable when the value of a financial asset is higher when buying it than when selling it. As a result of the transaction, one of its parties will be either in the plus or minus. The difference with the minus sign must be written off. With the help of a swap transaction, merchants try to reduce risks to their capital. Swaps can be positive or negative. If the swap is negative, the money in the account is automatically debited. When the swap is positive, the money in the account increases.

Swap varieties

Depending on the financial asset that is the object of the transaction, swap can be divided into: Currency, Interest, Securities, Precious Metals, Credit (Default), Repo, Swaption. Currency swap transactions exchange currency instruments. This The transaction lasts in several stages and has two dates. The swap transaction becomes profitable due to the difference in the exchange rate of the financial instrument. Currency swap is used for speculation and risk hedging. An interest rate swap transaction makes an agreement to replace interest on payments. The Securities Swap is understood to be an exchange of securities in a future transaction. Precious metals swap is produced simultaneously in two stages, this is a deal to buy and sell one precious asset. Then, at the second stage of the swap transaction, the same precious asset is sold and bought. A swaption is considered a derivative of an option and a swap. Transactions on swaptions are made in the future with a mandatory indication of their price. In case of credit (or default) swap, it is possible to insure its debt financial assets against losses during default. A similar situation occurs if a banking or other financial entity acting as a lender is insured from the possible bankruptcy of the client and takes a loan from another financial structure. In this case, another financial structure assumes the role of insurance. Trading in financial markets, traders should know, swap – what it is. And use this tool in your operations. Record What is swap first appeared