Articles on Stock markets

News, Research and Analysis

Help Center
IntroductionMarket AbbreviationsStock Market StatisticsThinking about Your Financial FutureSearch for AdvisorsFinancial CalculatorsFinancial MediaFederal Agencies and Programs
Investment Portfolios
Investment Terminology and Instruments
Technical Analysis and Trading
Cryptocurrencies and Blockchain
Retirement
Retirement Accounts
Personal Finance
Corporate Basics
What is a Swap?

What is a Swap?

A swap is an over-the-counter agreement between institutions to "swap" one thing for another, usually the cash flow related to interest-bearing instruments.

Given the negotiable and over-the-counter nature of swaps, there are many permutations and manifestations of this concept. The most common is the interest rate swap, in which the counter-parties agree to pay the interest due on principal amounts which are not exchanged.

These are done as a hedging strategy against interest rate risk, and are transacted intercontinentally, usually, between one party who has a fixed interest rate and another party which has a variable interest rate. In such a way, institutions can diversify their exposure to interest rates around the world.

Other types of swaps include Equity Swaps, Currency Swaps, Commodity Swaps, and Credit Swaps.

What is an FX Swap?
What is a Rate Swap?

Keywords: hedging, swaps, over-the-counter (OTC), interest rate swaps, market exposure,