Forex trading can be a lucrative way to make money online, but it can also be risky. One aspect of trading that many traders overlook is the concept of swap. Swap is the interest paid or earned for holding a position open overnight. Some forex pairs have positive swaps, which means that traders can earn interest on their positions. In this article, we will explore what forex pairs have positive swap and how traders can take advantage of them.
What is Swap?
Swap is the interest paid or earned for holding a position open overnight. When traders open a position on the forex market, they are essentially borrowing one currency to buy another. The interest rate differential between the two currencies determines the swap rate. If the interest rate on the currency being bought is higher than the interest rate on the currency being sold, the trader earns a positive swap. If the interest rate on the currency being sold is higher than the interest rate on the currency being bought, the trader pays a negative swap.
For example, let’s say a trader buys EUR/USD and holds the position overnight. If the interest rate on the euro is higher than the interest rate on the US dollar, the trader earns a positive swap. If the interest rate on the US dollar is higher than the interest rate on the euro, the trader pays a negative swap.
What Forex Pairs Have Positive Swap?
Forex pairs with positive swaps are known as carry trades. Carry trades involve borrowing a low-yielding currency and investing in a higher-yielding currency. The goal of a carry trade is to earn the interest rate differential between the two currencies.
Some of the most popular forex pairs with positive swaps include:
1. AUD/JPY
The Australian dollar (AUD) has a higher interest rate than the Japanese yen (JPY), making AUD/JPY a popular carry trade pair. The interest rate differential between the two currencies can be quite significant, making it an attractive pair for traders looking to earn interest on their positions.
2. NZD/JPY
The New Zealand dollar (NZD) also has a higher interest rate than the Japanese yen (JPY), making NZD/JPY another popular carry trade pair. The interest rate differential between the two currencies is not as significant as AUD/JPY, but it can still be an attractive pair for traders looking to earn interest on their positions.
3. AUD/USD
The Australian dollar (AUD) has a higher interest rate than the US dollar (USD), making AUD/USD another popular carry trade pair. The interest rate differential between the two currencies is not as significant as AUD/JPY, but it can still be an attractive pair for traders looking to earn interest on their positions.
4. NZD/USD
The New Zealand dollar (NZD) also has a higher interest rate than the US dollar (USD), making NZD/USD another popular carry trade pair. The interest rate differential between the two currencies is not as significant as AUD/JPY or NZD/JPY, but it can still be an attractive pair for traders looking to earn interest on their positions.
How to Take Advantage of Forex Pairs with Positive Swap?
Traders can take advantage of forex pairs with positive swaps by holding positions open overnight. If the trader is long (buying) a currency with a higher interest rate than the currency they are short (selling), they will earn a positive swap. If the trader is short (selling) a currency with a higher interest rate than the currency they are long (buying), they will pay a negative swap.
It is important to note that swap rates can change frequently due to changes in interest rates and market conditions. Traders should always check the swap rates before opening a position and monitor them regularly.
Conclusion
Forex pairs with positive swaps can be a great way to earn interest on trading positions. Traders can take advantage of carry trades by borrowing a low-yielding currency and investing in a higher-yielding currency. Some of the most popular forex pairs with positive swaps include AUD/JPY, NZD/JPY, AUD/USD, and NZD/USD. However, it is important to note that swap rates can change frequently, so traders should always check the rates before opening a position and monitor them regularly.
