Currency swap

In institutional markets, an agreement between two parties to exchange principal amounts in two currencies, to pay each other interest on the amounts received for the life of the agreement, and to re-exchange the principal at maturity. It lets a borrower raise money where it is cheapest and end up paying in the currency it needs. Central banks maintain swap lines with each other on the same principle, so that a shortage of one currency in another country's banking system can be relieved without either side selling reserves.

In retail trading the word names something narrower. A spot position left open past the daily cut off is rolled forward by a short dated swap, and the credit or debit that results is what platforms label swap. It derives from the interest rate differential between the two currencies over one day, adjusted by the provider's own charge, and one weekday carries three days of it because the value date being rolled lands after the weekend.

Conflating the two is the common error, and the second meaning has a further trap: the nightly figure is not the market differential, it is the differential after the provider's adjustment. That adjustment is applied to both directions, so it is entirely possible for the same instrument to carry a debit whether the position is held one way or the other. The rates applied are published per instrument and change when either central bank moves.