what is a swap 
a swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different financial instruments most swaps involve cash flows based on a notional principal amount related to a loan or bond although the security can be almost anything usually the principal does not change hands each cash flow comprises one leg of the swap one cash flow is generally fixed while the other is variable and based on a benchmark interest rate floating currency exchange rate or index price the most common kind of swap is an interest rate swap swaps do not trade on typical exchanges and generally retail investors do not engage in them rather swaps are transacted over the counter otc or on security based swap execution facilities sefs they occur primarily between businesses or financial institutions 12