How do swaps work in trading?

Swaps are financial agreements between two parties to exchange cash flows based on underlying assets or rates. In trading, particularly in Forex, a swap typically refers to the interest differential between the two currencies involved in a trade. If you hold a position overnight, you may either incur or receive a swap based on the interest rates of the currencies traded. This can affect the overall profitability of a trade. Swaps may vary according to the broker, market conditions, and the currencies involved. Traders should be aware of these costs when planning their trading strategies.