In forex trading, a swap is an agreement between two parties to exchange financial instruments or currencies at a predetermined future date. The most common type of swap is an interest rate swap, where two parties agree to exchange interest payments on a notional amount of principal.
In the forex market, swaps can refer to the overnight interest rate that traders pay or receive for holding a position overnight. This can either be a positive or negative amount depending on the interest rate differential between the two currencies being traded.
Swaps can be an important consideration for forex traders who hold positions for an extended period, as they can impact the overall profitability of a trade. Some traders may use swap-free accounts to avoid these costs, although this may come with other trading restrictions.