What is an 'Overnight Index Swap'
An overnight index swap is an interest rate swap involving the overnight rate being exchanged for a fixed interest rate. An overnight index swap uses an overnight rate index, such as the Federal Funds Rate, as the underlying for its floating leg, while the fixed leg would be set at an assumed rate. Overnight index swaps are popular amongst financial institutions for the reason that the overnight index is considered to be a good indicator of the interbank credit markets, and less risky than other traditional interest rate spreads.
BREAKING DOWN 'Overnight Index Swap'
Generally shortterm, the interest of the overnight rate portion of the swap is compounded and paid at reset dates, with the fixed leg being accounted for in the swap's value to each party. The floating leg's present value is determined by either compounding of the overnight rate or by taking the geometric average of the rate over a given period. Like other interest rate swaps, an interest rate curve must be produced to determine the present value of any cash flows.

Swap Rate
The rate of the fixed portion of a swap as determined by its ... 
Delayed Rate Setting Swap
An exchange of cash flows, one of which is based on a fixed interest ... 
Bond Market Association (BMA) Swap
A type of swap arrangement in which two parties agree to exchange ... 
Asset Swap
Similar in structure to a plain vanilla swap, the key difference ... 
Swap
A derivative contract through which two parties exchange financial ... 
Liability Swap
An exchange of debt related interest rates between two parties ...

Investing
Interest Rate Swaps Explained
Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows. 
Markets
What's an Interest Rate Swap?
An interest rate swap is an exchange of future interest receipts. Essentially, one stream of future interest payments is exchanged for another, based on a specified principal amount. 
Managing Wealth
How To Read Interest Rate Swap Quotes
Puzzled by interest rate swap quotes terminology? Investopedia explains how to read the interest rate swap quotes 
Investing
Different Types of Swaps
Investopedia explores the most common types of swap contracts. 
Trading
Currency Swap Basics
Find out what makes currency swaps unique and slightly more complicated than other types of swaps. 
Markets
The FastPaced World of Libor & Fixed Income Arbitrage
LIBOR is an essential part of implementing the swap spread arbitrage strategy for fixed income arbitrage. Here is a stepbystep explanation of how it works. 
Trading
Hedging With Currency Swaps
The wrong currency movement can crush positive portfolio returns. Find out how to hedge against it. 
Managing Wealth
The Advantages Of Bond Swapping
This technique can add diversity to your portfolio and lower your taxes. Find out how. 
Trading
Effects of OIS Discounting for Derivative Traders
The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss. 
Trading
Managing Interest Rate Risk
Interest rate risk stems from the possibility that an interestbearing asset’s value will change due to changing interest rates.

What are interest rate swaps on the OTC market?
Learn about interest rate swaps and how they are traded over the counter, and understand the impact of DoddFrank on swaps ... Read Answer >> 
What is an absolute rate?
An absolute rate is easy to understand once you know the basics of an interest rate swap. An absolute rate is the fixed rate ... Read Answer >> 
What would motivate an entity to enter into a swap agreement?
Learn why parties enter into swap agreements to hedge their risks, and understand how the different legs of a swap agreement ... Read Answer >> 
What are the risks involved with swaps?
Learn about interest rate risk and counterparty risk for interest rate swap agreements, and understand how the DoddFrank ... Read Answer >> 
Do interest rate swaps trade on the open market?
Learn how interest rate swaps are traded on the OTC and interbank markets, and how these swaps can be used to arbitrage different ... Read Answer >> 
Can individual investors profit from interest rate swaps?
Find out how individual investors can speculate on interest rate movements through interest rate swaps by trading fixed rate ... Read Answer >>