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Learn about Opposite Swaps with iMinds Money's insightful fast knowledge series. A change swap is a second swap agreement inserted into by a celebration to a preexisting swap contract. The secondary swap will offset, or reverse, the position held in the initial agreement. Quite simply, it is a fresh swap with the exact opposite conditions to a pre-existing swap contract is manufactured. A change swap can therefore simply be regarded as the undoing, with no cancellation, of an previous swap contract. However, the change swap need not be carried out with the same counter-party to the initial as it is a completely new contract and thereby allows one get together to pull out from a swap at no extra cost, even if the counter-party intends to keep their investment position. The reason behind and method of executing a change swap will depend on the nature of the initial contract. Swaps are a kind of derivative that, as the name suggests, will involve the trading of financial benefits between two counter-parties. These benefits depend on the underlying property in the swap contract. Most commonly relationship repayments are employed, though collateral and commodities centered swaps are also positively traded. Remember that the underlying assets themselves are not exchanged, basically the rights to the benefits produced from the asset. For instance, these may be payments on a relationship or dividends from stock. Swap agreements can be produced for any of a number of reasons: to hedge against changes in interest rates, commodity values, forex, or some other uncertainty; to conversely speculate for capital gain; or to receive advantages from otherwise inaccessible assets.
