What is a swap based on?

Most swaps involve cash flows based on a notional principal amount such as a loan or bond, although the instrument can be almost anything. Usually, the principal does not change hands. Each cash flow comprises one leg of the swap.

What are the different types of swaps?

The plain vanilla interest rate and currency swaps are the two most common and basic types of swaps. What Is the Swap Market? Swaps are unlike most standardized options and futures contracts, which means most individual investors aren't really familiar with them or how they work.

How much is the swap market worth?

In 1987, the International Swaps and Derivatives Association reported that the swap market had a total notional value of $865.6 billion. By mid-2006, this figure exceeded $250 trillion, according to the Bank for International Settlements.

Who are the key players in the swap market?

As such, this isn't a market meant for your average investor. Instead, some of the key players in the swap market include banks and other financial institutions, governments, institutional investors, hedge funds, and corporations. These entities often turn to the swap market for two main reasons: commercial needs and comparative advantage.