Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Interest rate swap definition

An interest rate swap is an agreement to exchange interest payments from a financial instrument for interest payments from another financial instrument.

This usually involves trading future interest payments from an instrument with a fixed interest rate for one with a floating or variable rate, or vice-versa. This is usually undertaken to increase or decrease your exposure to changes in interests rates, or possibly to secure a lower interest rate than would otherwise be available. However, interest rate swaps can involve swapping one floating rate for another. This is known as a ‘basis swap’.

Ultimately, interest rate swaps come down to two or more parties agreeing to swap one set of cash flows for another. A company may only be able to secure a loan at a floating rate, for example, but would prefer to be exposed to a fixed rate, and therefore look to swap interest rates with another party.

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