Swap

When you swap or exchange securities, you sell one security and buy a comparable one almost simultaneously.

Swapping enables you to change the maturity or the quality of the holdings in your portfolio. You can also use swaps to realize a capital loss for tax purposes by selling securities that have gone down in value since you purchased them.

More complex swaps, including interest rate swaps and currency swaps, are used by corporations doing business in more than one country to protect themselves against sudden, dramatic shifts in currency exchange rates or interest rates.

An agreement between two parties to exchange cash flows of underlying securities. For example, in an interest rate swap, a common type of swap, one party agrees to pay a fixed interest rate in return for receiving a variable rate from the other party.