Religion, Ethics and Forex Trading – What are swap-free accounts?
Many people have heard about swap-free accounts, but they did not fully understand what it is. Any Forex market participant who has been trading for a long time or is not very aware of a fairly common problem, namely the forced payment of swaps. Swaps are required to be paid by those traders who opened orders and did not close them within a day but left them the next day, so for each new day of holding a deal on the market, swaps are charged, which the trader must later pay.
The amount paid by a trader for swaps is always different and is always charged individually, the amount depends on the following factors: what lot the trader entered the market with, how many days he is going to hold this order, what currency the trader has on his account and what currency pair the trader has chosen to open a deal.
Sometimes the amount depends on whether the central bank changes the interest rate for a given type of currency, it is for this that the trader must always be aware of the news and it does not matter whether he is guided in his trading by technical analysis or fundamental, he simply must always know about all the current news.
Swaps and Islam
Trading with commissions such as swaps is prohibited for Muslims by their religion (Sharia), thus traders professing the religion of Islam are very constrained in their actions and cannot open deals for a long time, and this, in turn, adversely affects their trading and of course their income. Islamic finances are complicated in their nature, so they require thorough understanding.
Accordingly, in order not to infringe on the rights of Muslims, many brokerage companies, realizing the seriousness of the situation, go to meet this type of trader and add the ability to add swap Free forex trading accounts in their companies. Generally, such an account is available on almost every broker’s website already.
Essence of Swap-Free Accounts
Professionals working in the Forex company gave an explanation to swap-free accounts, they claim that when opening a deal on this account, the commission will be written off not for the fact that the trader moved his deal to the next day, but for how much large volume of transactions the trader conducts and from their number.
On swap-free accounts, the payment of commissions does not disappear anywhere, just the very reason for collecting commissions changes radically, thereby allowing traders professing Islam to trade without fear that they are violating Sharia law. Because of all this, this type of account received the unofficial name “Islamic account”.
Advantages of Swap-free Accounts
Let’s list the advantages of a Swap Free account. And the advantages are as follows: if a trader uses this particular account, then this contributes to a pronounced saving of time, which the trader wastes in vain following specific news, in order to know if the interest rate for particular currency changes, and this, in turn, contributes to an increased income.
Another not unimportant plus is the fact that the Swap Free account helps a trader to calculate the results of transactions that he has already opened much easier. In general, the difficulties in calculating profits, if they do not disappear completely, then become an order of magnitude easier.
Factors to Consider
In any situation, swap-free accounts have their own nuances that should be taken into account by any market participant who is going to open this particular type of account. Of a large number of brokerage firms, some of them have every right to set the size of the commission, which will be calculated as a percentage, or they can set the amount to be fixed.
It is advisable for traders who are going to open swap-free accounts that they never forget that these accounts are needed in order to open deals for a long time if the trader’s trading strategy involves closing a deal on the same day on which it is and was opened, then the swap-free account will not be profitable at all.
So this type of account is suitable for traders who have long-term or medium-term trading tactics in their assets, but if a trader is trading using a scalping strategy or some other intraday strategy, then it is simply contraindicated to open swap-free accounts for them.
Are Swap-free Accounts Favorable?
The amount of the swap directly depends on the bank interest rates used in currency trading. Therefore, it is a regularity that swaps change over time because for different reasons banks periodically change interest rates. The size of swaps determines the size of the volume of trading positions, i.e. the larger the lot, the larger the swap, both positive and negative.
Considering all this, a logical question may arise: if you can use swap-free accounts and not pay for holding positions, then why doesn’t everyone do that? It’s simple, some brokers accrue interest on unused, free from trading funds. Swap-free accounts are very relevant for those who are engaged in long-term investments, i.e. for those for whom deals can be opened for a very long time.