Direct answer: what a worked example of triple swap means
A worked example of “triple swap” is a numerical scenario that illustrates how an overnight position can accrue an overall swap/roll cost or credit when the calculation is treated as three separate interest-rate-related components, then combined (“netted”).
Because real providers may use different contract conventions and different internal swap-rate inputs, a worked example should be viewed as a demonstration of mechanics, not a prediction. When you build one, you must state every assumption that affects the arithmetic.
Mechanics: what triple swap is and what a calculation needs
Triple swap is a way of describing an overnight swap that is composed of three legs. In plain terms, you start with a position in an FX instrument and then calculate the overnight interest effect using interest-rate differentials and the instrument’s overnight/roll convention. “Triple” means the overall swap figure is treated as the sum of three parts (for example: components related to each currency leg and an additional component depending on how the instrument is represented).
To create a worked example, you typically need the following inputs (you may rename them, but they must be explicit):
- Position direction: long or short affects whether you receive or pay net interest.
- Notional exposure: the trade’s size expressed in a consistent unit.
- Dates and roll logic: when the provider applies the overnight swap (often tied to trading day cutoffs).
- Three assumed swap-rate components: the rates you will apply to compute each leg.
- Day-count / accrual convention: how the day fraction is handled (for example, simple “one-day” for an overnight illustration).
- FX conversion for the account currency (if needed): converting any intermediate currency results into the reporting currency.
Key point: separating stable mechanics (how you add legs and apply a day fraction) from variable conditions (interest differentials, provider formulas, market pricing, and roll timing) lets you understand what could change.
Worked numerical example (fully hypothetical)
Below is a transparent, self-contained scenario. It uses made-up rates and a simplified “one overnight” accrual. It is designed so you can reproduce the arithmetic.
Assumptions (state these up front):
- Instrument: an FX contract priced as Base/Quote = EUR/USD.
- You buy (go long) EUR/USD.
- Notional: €100,000.
- Time: exactly one overnight period, and we apply a day factor of 1 day (no weekend/holiday extensions).
- Account currency: EUR (so no FX conversion is needed at the end).
- Triple-swap components (assumed rates applied to compute each leg for one day):
- Leg 1 rate: +0.010% per day
- Leg 2 rate: −0.004% per day
- Leg 3 rate: +0.002% per day
- Interpretation: the overall overnight swap is the sum of the three legs.
Step 1: compute each leg’s interest effect (in EUR):
- Leg 1 amount = €100,000 × 0.010% = €100,000 × 0.00010 = €10.00
- Leg 2 amount = €100,000 × (−0.004%) = €100,000 × −0.00004 = −€4.00
- Leg 3 amount = €100,000 × 0.002% = €100,000 × 0.00002 = €2.00
Step 2: net the three legs:
- Total triple-swap (one day) = €10.00 + (−€4.00) + €2.00 = €8.00 credit
What this means mechanically: in this hypothetical case, the net is positive, so the position would receive an overnight amount. If you changed the direction (short instead of long) or changed one or more assumed component signs, the net could become zero or negative.
Limitations and risks (what can break the example)
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Provider-specific methodology: real “triple swap” implementations depend on the provider’s internal formula and how they break the overall swap into components. A worked example using assumed component rates may not match a specific platform’s display.
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Timing and roll dates: overnight swap typically applies around a rollover cutoff. If the position spans different calendar conditions, the accrual may be larger than a simple “one-day” illustration.
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Market and cost inputs change: interest-rate differentials and any internal pricing inputs can change over time. Even if the mechanics are correct, the numeric components you assume may not reflect the actual ones used for that date.
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Contract conventions and day-count: some instruments use conventions beyond a simple 1-day factor.