By Alex Eliades
If you’ve done a bit of research into Forex you may have come across brokers offering swap-free trading or indeed charging swaps, otherwise known as rollover charges or overnight fees.
For those of you that are not familiar with swaps you need to understand some basic principles of the currency market and the central banks that control the currencies. You see currencies are tied to Governments that set interest rates in their country and while the US might have an interest rate of 1%, Australia might have an interest rate of 5%. This means that someone with $100,000 USD in their bank account will earn much less in interest than someone with the equivalent AUD in their bank account. When trading a currency pair that has a distinct difference in interest rate between the two currencies, one currency will organically increase in value over the other without any market movement. Therefore, in the Forex market swaps are charged on trades in order to compensate for the polarized interest rates.
Now that you understand about what swaps are and why they are applied to Forex trades you need to understand that beliefs such as Islam do not agree with interest and therefore some brokers have decided to offer swap free Forex accounts for them. Swap free accounts simply do not charge daily swaps or rollover fees on trades that counter the difference in interest rates. This can expose a swap free Forex broker to carry traders to some degree and as such brokers that offer swap free trading often have to put some restrictions in place such as a wider spreads on currency pairs with contrasting interest rates or time limit that the traders are allowed to leave their positions opened.
One important thing to note when searching for a swap free broker is that some brokers only offer swap-free accounts to clients that follow the Islamic faith, and they want proof. Other brokers provide swap-free accounts to anyone that wants one and some brokers have not made it clear whether or not they have any stipulations. Quite often traders that select special swap-free accounts might miss out on certain trading conditions that are only available to standard swap accounts, but this depends on the broker. Some brokers like XGLOBAL Markets have a single account type and offer their best conditions to all traders, which includes a swap-free trading environment that is available to all irrespective of faith.
Written By Alex Eliades
