If you are a foreign exchange broker or if you are planning to become one, then you must have all the necessary knowledge about the business. Today online foreign exchange trading is becoming popular worldwide. The main reasons that attribute to this popularity include the transparency in which the trading is done, the cheap start-up costs (some companies accept as little as $50 to begin), no hidden charges and the ability to access and trade at any time of the day.
For a trader to be successful in the business, he or she will need a website. A successful Forex website will, of course, need to have plenty of Forex information. Forex is a company that can provide you with this valuable information for free. One of the must-have resources for your site is the swap history.
What is a Forex swap?
A broad, general definition for a Forex swap is this: the simultaneous purchase and sale of identical amounts of one currency for another with two different value dates. The idea of currency swaps was initiated in the 1970s to control other currencies in the United Kingdom. The main reason was to eliminate premium fees that were charged to UK companies when borrowing in US Dollars.
How the Forex swap works
A Forex swap has two parts. First, it has a place for foreign exchange transaction, whereby two parties agree on a particular rate and an initial date for buying and selling a specific amount of one currency versus another. The initial date is sometimes called the near date since it is the first trading day in respect to the current day.
The second part is the future foreign exchange transaction. In this part, the same amount of currency is simultaneously bought or sold against another but this time, a second date and exchange rate is agreed upon. In this case, the date agreed upon is referred to as the far date.
What are the benefits of currency swaps?
The main advantage of currency swapping is protection against risks. Currency values constantly fluctuate worldwide, so if you are an investor or importer, currency swaps can help you minimize your risk of losing money in transactions. Here is an example where you are importing goods worth $100,000 from Europe. Assuming the exchange rate for dollar to euro is 1:0.6, you will spend € 60,000 on your purchases at the moment. However, the rate may not be the same in a year's time. The rate may rise, which would increase your cost. In this scenario, you can use currency swapping to avoid the risk. The only disadvantage is that if the rate falls within that time, you lose money anyway.
One of the challenges owners and operators always face is finding the right tools for their finance websites. There are many websites which offer these tools online. Forex is one of these companies. The special thing about Forex is that they offer the same accurate and reliable information as other companies, yet all their tools are offered at no cost. All the tools are free of charge, making them a perfect choice for a beginner.
