SWAP-FREE (Islamic) ACCOUNT

Swap free accounts are offered to those who are unable to earn or pay interest due to religious reasons. In compliance with these religious restrictions, these Forex swap free trading accounts will not be charged, nor earn the interest that comes with holding a Forex trade.

Please note that CIB will permit no-swap accounts only for religious reasons.

What Are Swaps?

• In the world of finance, a swap is a derivative by which two counter-parties swap (or exchange) identical amounts of one currency for another with two different value dates. The level of swap rates may vary in size and change depending on the level of interest rates.
• Put simply, a swap is the difference between the overnight interest rate between two currencies.
• Swaps can also be used to hedge against certain risks such as fluctuations in interest rates as well as speculating on shifts in the prices of underlying financial instruments. For example, using swaps allows companies to reduce their exposure to interest rate fluctuations and limit cash flow fluctuations.

Types of Swaps:

• There are five broad types of swaps- interest rate swaps, currency swaps, credit swaps, commodity swaps and equity swaps.
• In the world of forex trading, currency swaps are used to roll over open positions from one trading day to the next. Holding an open currency position overnight involves receiving interest on one currency and paying interest on the other.

Calculating a Swap:

A quick example below will show the calculations involved in forex swaps, assuming a SELL position for one standard lot of EURUSD. This is a SELL of 100,000 Euro and a simultaneous BUY of 100,000 USD.

Let’s assume the interest rate on the Euro is at 2% and 1.5% for USD.

With a SELL order of EURUSD we are BORROWING Euro and DEPOSITING USD. The borrowing involves paying interest and the depositing involves earning interest.

As the interest rate for the EUR is higher, we are essentially paying more for borrowing the EUR than we are earning for depositing the USD.

The calculation of the swap might look complicated but is in essence quite straightforward.

Swap = (Contract Value) x (Interest Rate Difference) x (Currency Pair Price / 365)

Assuming a EURUSD price of 1.29205, our swap in this case is calculated as:
Swap = (100,000) x (1.5% – 2%) x (1.29205 / 365) = – 1.76993 USD

In this case, keeping the position open overnight would cost approximately 1.77 USD on the transaction. There can also be a broker commission (which we haven’t taken into account here) which would be an extra cost, over and above the pure swap cost.

• To enable your swap free trading account you will need to contact our customer support department at support@cibfx.com As soon as our Back Office receives your request, your trading account will receive swap-free status and you will be notified by email accordingly. If a swap free trade, for any currency pair, is held open for more than 10 (ten) days swap fees may be applied, unless this requirement is waived by CIB.

Please note that CIB reserves the right to revoke the swap-free status granted to any real trading account.