Forex Swap

Forex Swap Meaning:
In foreign exchange forward terminology, a forex swap involves selling or buying a certain amount of one currency pair for one date and simultaneously buying or selling that same amount for value on another date. The forex swap might also refer to the swap points that are the number of pips that need to be added or subtracted from the spot exchange rate to account for the cost of carry from spot value to the desired forward value date.

Forex Swap Example:
A forex swap typically occurs because a forex counterparty has to roll an existing forex position forward to a future date to delay delivery on the contract, although a swap can also be used to bring delivery dates closer.For example, traders commonly execute tom/next swaps or rolls to avoid delivering on their overnight positions. Corporations, on the other hand, might require a forward outright so they would initially transact for value spot, and then request the forex swap points for the forward value date of interest. If they had originally bought a currency for value spot, they would then perform a currency swap by selling that currency for value spot and buying it for the future value date they require.