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What is swap?
Swap is the amount of money you receive or pay for holding a position overnight. It is formed based on central banks’ interest rates of those countries whose currencies you trade. Swap can be positive or negative.
How does it work?
When buying the EUR/USD currency pair, you borrow USD to buy EUR.
Let’s suppose the Federal Reserve interest rate is 1.5%, and the rate of the European central bank is 0.5%.
If you borrow $100,000 from the Central Bank of America to deposit €95,000 to your account in the Central Bank of Europe, then each time transferring positions through midnight you'll pay 1.5% rate for your loan in the Central Bank of America and receive 0.5% interest on your deposit in the European Central Bank.
0.5% (you receive) – 1.5% (you pay) = -1%. It means that you will have to pay the fee for holding a position overnight.
In the case you borrowed the currency with a lower interest rate comparing to the currency in what you invested, you would receive this fee on your account every night while you hold a position.
However, not all traders can get or pay such a fee, specifically, Muslim traders, because Islamic faith prohibits its followers from receiving or paying interest. That’s why FBS offers a swap-free option called Islamic.
What is Islamic (Swap-Free) option?
Islamic (Swap-Free) is an option to have an account free from fees. It means you will neither receive nor pay the swap (fee).
Who can have this option?
According to the Islamic faith, Muslim traders are prohibited from receiving or paying interest. This service was created for them.
Is Islamic (Swap-Free) service available for all trading instruments?
Islamic (Swap-Free) service is available for all trading instruments apart from those in the Forex Exotic and CFD categories.
How to get Swap Free account?
To activate the Swap Free option, contact our 24/5 support team.