What is Swap in Stock Indices?
In Stock Indices, there is the payment of swaps every day; this is the interest rate of a stock indices instrument that the stock indices instrument earns per day. This interest for a stock indices instrument like the Australian Dollar is 5%, this means that every day a fraction of this five percent is paid to anyone holding this Australian Dollar.
This brings the Issue of paying and getting paid interest which is an Issue in Islamic Religion. Islamic Religion does not allow paying and getting paid interest, For Islamic stock indices traders there is an account designed in accordance with their Values; Known as Swap Free.
For this stock index account a stock indices trader will not pay the overnight rollover interest on any stock index and will also net get paid any interest, this is also known Shariah Compliant where there is no paying of RIBA (interest) - also referred to as Islamic Accounts.
For a stock indices trader to get a swap free account, a stock indices trader has to go to a stock indices Islamic stock indices broker and select the option of “Islamic Account”, This option is provided under the Accounts Section of the stock indices broker specifying the instructions of opening one of these accounts.
Once a stock indices trader opens a this stock index account, then the Stock Indices Trading rollover interest is removed. Once this no paying of interests is set, if a stock indices trader is using a trading platform such as the MetaTrader 4 then the rollover fee record will be set to zero.
The rollover fee is charged daily at the end of the trading day for those holding a particular stock indices instrument for which a swap is to be applied. As a stock indices trader if you do not want to pay this rollover you should close your trades before the end of the day, that way you will not pay the rollover fee as you are no longer holding open stock indices trade. Because the stock indices market does not open on Saturday and Sunday, the rollover for these 2 day will be charged on Wednesdays, meaning on Wednesday one will pay the rollover for Wednesday, Saturday and Sunday, and therefore on Wednesdays this rollover fee is paid 3 Times.
These positions that pay a rollover interest are commonly referred to by traders as Overnight Positions. Day Traders rarely leave their trades opened overnight and close them all before the end of the day. Swing Traders on the other hand may leave their trades opened for a few days and leave these trades overnight so as to capture more movement in the stock index price trend.
Once a stock indices trader finds a swap free stock indices broker and opens and Islamic Account, the stock indices trader will have the same trading conditions as those of other traders, except for the paying of rollover fees. This means a stock indices trader will use the MetaTrader 4 Stock Indices Platform like all the other traders, the stock indices trader can trade all currencies, all indices, all CFDs, all metals and all other Financial Instruments provided by the stock indices Islamic broker.
However, be careful in selecting a swap free broker, some brokers will add a commission or add some pips to the spread you trade with to cover the swap(Swap Fee Broker). This is not supposed to happen as the stock indices trader will still be paying for the interest even though is disguised as another charge, good stock indices Brokers do not add any commission nor do they add any charge on to the spreads.
Another thing is that some brokers will charge a rollover fee if the position held by a stock indices trader is held for more than 5 days or more than 7 days, this should not be the case and the stock indices broker should not charge any carry over interest even if the open positions are held for more than five or seven days. For traders wanting to open this swap free Account with a stock indices Islamic stock indices broker it is good to check for any additional terms of trading for the Islamic Account that you are going to be opening to make sure that the stock indices broker you choose is really a
no swap broker.
Islamic Stock Indices Account
Swap free accounts were introduced by brokers after demand for carry over interest free accounts grew among the Islamic stock indices traders. The traditional trading account entailed paying of rollover interests in what is known as rollover interest. This led to the introduction of Interest Free Accounts that Islamic traders could open and still keep in line with their rules on no paying and getting paid interest.