Bitcoin-Nasdaq Correlation Hits 3-Year High: BTC Now Mirroring Tech Stocks in 2025
Wall Street's favorite digital gold is behaving suspiciously like its tech darlings again. The Bitcoin-Nasdaq correlation just smashed through its highest level since 2022—proving once more that crypto markets still take their coffee orders from traditional finance.
Here's what's fueling the synchronicity:
• Fed policy whiplash driving both asset classes
• Institutional traders treating BTC like a tech sector ETF
• Retail FOMO pumping valuations beyond fundamentals
Analysts whisper this could mean two things: either Bitcoin's finally 'grown up' to become a legitimate macro asset, or the entire tech sector's been crypto-pilled without admitting it. Either way—someone check on the gold bugs.
One cynical take? This tight correlation conveniently ignores that time in 2023 when BTC decoupled to rally 90% while tech stocks flatlined. But hey, narratives are liquid—just like your portfolio during a flash crash.
Section 1: The 5 Core Types of Financial Swaps You Must Know
This is the foundational toolkit of the swap market. While countless “bespoke” variations exist, nearly all are built from these five Core concepts.
- The List:
- Interest Rate Swaps (IRS)
- Currency (Cross-Currency) Swaps
- Commodity Swaps
- Credit Default Swaps (CDS)
- Equity Swaps
- The Explanation (Post-List):
1. Interest Rate Swaps (IRS)
- What It Is: This is the most common type of swap. It’s an agreement between two counterparties to exchange one stream of future interest payments for another, based on a specified notional principal amount. This principal amount is “notional” because it’s just a reference number for calculation—it doesn’t actually get exchanged.
- The “Plain Vanilla” Swap: The most common IRS is the “fixed-for-floating” swap. One party pays a fixed interest rate (the “fixed leg”) and receives a floating interest rate (the “floating leg”) from the other party. The floating rate is tied to a benchmark like SOFR (Secured Overnight Financing Rate), which has replaced the older LIBOR benchmark.
- How It Works (Simple Example: Hedging Rising Rates):
- Scenario: Company A has a $10 million loan with a variable interest rate of “SOFR + 1%”. The company’s CFO is afraid interest rates will rise, making their future debt payments unpredictable and difficult to forecast.
- The Swap: Company A enters an IRS with a Swap Bank.
- Company A agrees to pay the bank a fixed 4% rate.
- The Swap Bank agrees to pay Company A the floating “SOFR + 1%” rate.
- The Result: The two floating-rate payments (the one Company A pays on its loan and the one it receives from the bank) cancel each other out. Company A is left with only one payment: the fixed 4% to the bank. They have successfully transformed their variable-rate debt into a predictable, synthetic fixed-rate loan.
- How It Works (Simple Example: Fixed-to-Floating):
- This works in reverse. A company (TSI) might issue a bond at an attractive fixed rate but feel it could get a better cash flow from a floating rate. It enters a swap to receive a fixed rate (which covers its bond payment) and pay a floating rate.
As the table shows, no matter how high the floating rate (SOFR) goes, the company’s floating-rate payments are perfectly offset by its floating-rate receipts from the swap. The company’s net cost is “locked in” at 4%, achieving the hedge’s goal of predictability.
2. Currency (Cross-Currency) Swaps
- What It Is: An agreement to exchange principal and interest payments denominated in different currencies.
- Key Difference from IRS: Unlike an IRS, currency swaps often involve an initial exchange of the principal amounts at an agreed-upon spot rate, with a re-exchange of the same principal amounts at maturity. This is a crucial distinction.
- Primary Uses:
- To secure cheaper debt: A US company can borrow cheaply in USD, and a German company can borrow cheaply in EUR. If they need the opposite currency, they can borrow in their home market (where they have a “comparative advantage”) and then swap the proceeds and interest obligations.
- To hedge currency risk: A US company with operations in Europe has steady EUR revenue but USD-denominated debt. It can use a currency swap to (synthetically) turn its EUR revenue stream into USD payments to match its debt, hedging against FX-rate fluctuations.
- How It Works (Simple Example):
- Scenario: A US company needs €10 million for a European project. A European company needs $12 million for a US project. The current spot rate is €1.00 = $1.20.
- Initial Exchange: The US Co. gives $12 million to the EU Co. The EU Co. gives €10 million to the US Co..
- Interest Payments: For the life of the swap, the US Co. pays a fixed Euro interest rate (on the €10 million it received) and the EU Co. pays a fixed Dollar interest rate (on the $12 million it received).
- Final Exchange: At maturity, they swap the principal amounts back. US Co. gives back €10 million, EU Co. gives back $12 million.
3. Commodity Swaps
- What It Is: An agreement to exchange a fixed price for a floating price on a set notional quantity of a commodity.
- How It Works (Simple Example):
- Scenario: An airline needs 1 million barrels of jet fuel every month. The spot price (floating price) is volatile. They want predictability.
- The Swap: The airline enters a commodity swap with a bank to pay a fixed $80/barrel and receive the floating spot price.
- The Result (Physical Purchase): The airline still buys its fuel on the open (spot) market.
- If the spot price is $90: The airline pays $90 to the fuel producer. But in its swap, it receives $90 (floating) from the bank and pays $80 (fixed). The swap makes $10, offsetting the high fuel cost. Net cost: $80.
- If the spot price is $70: The airline pays $70 to the producer. In its swap, it receives $70 and pays $80. The swap loses $10. Net cost: $80.
- Conclusion: The airline has locked in a guaranteed fuel cost of $80, protecting it from price spikes. This is a classic hedge.
4. Credit Default Swaps (CDS)
- What It Is: A derivative that acts like an insurance policy on a debt instrument (like a bond).
- How It Works:
- The CDS buyer makes periodic payments (like an insurance premium) to the CDS seller.
- The CDS seller agrees to pay the buyer the full value of the bond if a “credit event” (like a default or bankruptcy) occurs.
- Context (The 2008 Crisis): This is the instrument that became famous during the 2008 financial crisis. The problem was that parties were buying CDSs speculatively (without actually owning the underlying bond), and sellers (like AIG) had not reserved enough capital to pay out when all the underlying (mortgage-backed) bonds defaulted at once.
5. Equity Swaps
- What It Is: An agreement to exchange cash flows based on the return of an equity index (like the S&P 500) for a fixed or floating interest rate.
- How It Works: A hedge fund might want exposure to the S&P 500 without the capital cost of buying all 500 stocks. It enters a swap to pay a floating interest rate (like SOFR) and receive the total return (dividends + price appreciation) of the S&P 500. This is a capital-efficient way to get market exposure.
Section 2: The 2 Core Pillars of Swap Market Strategy: Hedging vs. Speculation
Every transaction in the swap market is motivated by one of two (often opposing) goals. Understanding this duality is key to understanding the market’s function.
- The List:
- Strategy 1: Hedging (Risk Management)
- Strategy 2: Speculation (Profit-Seeking)
- The Explanation (Post-List):
1. Strategy 1: Hedging (Risk Management)
- Definition: Hedging is the primary, “utility” purpose of swaps. It is the attempt to reduce or eliminate an existing risk in your portfolio or business operations. A hedge is an offsetting position.
- The Goal: The goal of a hedge is not to make a profit, but to protect a profit or lock in a known cost. It’s about trading future uncertainty for present certainty.
- Real-World Example (The “Perfect Hedge”): A propane retailer has a contract to sell 1 million gallons of propane to a municipal customer at a fixed price in 6 months. The retailer doesn’t know what the cost of propane will be then.
- The Risk: If propane prices skyrocket, the retailer’s margin is wiped out.
- The Hedge: The retailer enters a financial swap that locks in a known cost for 1 million gallons in 6 months. Now, both the sale price and the supply cost are fixed. The retailer’s margin is guaranteed, regardless of what the market does. This is a “perfect hedge” where both sides of the equation are known.
2. Strategy 2: Speculation (Profit-Seeking)
- Definition: Speculation is the opposite of hedging. It involves taking on risk in an attempt to profit from a change in an asset’s price. You aren’t offsetting an existing risk; you are creating a new risk.
- The Goal: The goal is pure profit, driven by a bet on which direction the market will move.
- Real-World Example (The “Speculative Position”):
- Scenario: The same propane retailer has no fixed-price sale contract. But, the CFO believes propane prices are “too low” and will rise.
- The Speculation: The retailer enters the same financial swap to lock in a low cost for 1 million gallons, without a corresponding sale.
- The Result: This is not a hedge. This is a speculative bet. If prices rise, the retailer profits from the swap. If prices fall, the retailer loses money. They have created a new position based on a market opinion.
The Market Needs Both
A healthy swap market requires speculators. These two forces are not enemies; they are two sides of the same coin.
These two parties are natural counterparties. The speculator absorbs the risk that the hedger wants to get rid of. The bank often stands in the middle, acting as the market-maker for both, connecting the hedger to the speculator.
The Blurry Line Between Hedging and Speculation
For non-financial corporations, the line between these two activities can be dangerously blurry. Research identifies the concept of an “Optimal Hedge Ratio” for a firm—the amount of hedging needed to stabilize its normal business operations.
This leads to a crucial, expert-level understanding: any deviation from this stable ratio can be interpreted as “speculative activity”. When a corporate treasurer, under the guise of hedging, decides to hedge less this year because they “feel” rates will stay low, or hedge more because they are scared of a market crash, they are speculating. They are deviating from their optimal, stable hedge ratio based on a personal market opinion, which is the definition of speculation.
Section 3: Top 7 Swap Strategies & Structures for Advanced Players
Beyond the “plain vanilla” swaps, a world of complex, “structured” products exists. These are designed for very specific risk management or speculative goals and are used by sophisticated corporations, banks, and fund managers.
- The List:
- The Swaption (An Option on a Swap)
- Amortizing & Accreting Swaps
- Forward-Starting Swaps
- Basis Swaps
- Portfolio Overlays (Duration Management)
- Asset Swapping (Swap Spread Speculation)
- Unwinding Swaps (Terminating for Value)
- The Explanation (Post-List):
1. The Swaption (An Option on a Swap)
- What It Is: A “swap option” or “swaption” is an option that gives the buyer the right, but not the obligation, to enter into a specific swap at a future date. The buyer pays an upfront “premium” for this right.
- Payer Swaption: Gives you the right to enter a swap as the fixed-rate payer.
- Who Uses This & Why: A real estate developer who needs to secure a $50 million floating-rate loan in 1 year. They are afraid rates will rise. They buy a payer swaption today that gives them the right to “swap to fixed” at 5%.
- Scenario 1 (Rates Rise to 7%): They exercise the swaption, get their floating loan, and enter the swap. Their net cost is locked at 5%. This is a huge win.
- Scenario 2 (Rates Fall to 3%): They let the swaption expire (losing only the premium). They get their floating loan and pay the much lower 3% market rate. This flexibility is what they paid the premium for.
- Receiver Swaption: Gives you the right to enter a swap as the fixed-rate receiver.
- Who Uses This & Why: An investor or bank that anticipates falling interest rates and wants to lock in the right to receive a high fixed return.
2. Amortizing & Accreting Swaps
- What They Are: These are swaps where the notional principal (the amount used for calculation) changes over the life of the swap.
- Amortizing Swap: The notional principal declines over time.
- Who Uses This & Why: Anyone with a mortgage or an amortizing loan. A standard swap with a fixed notional would be an “imperfect hedge” as the loan principal gets paid down. An amortizing swap is structured so the swap’s notional perfectly matches the declining principal of the loan.
- Accreting Swap: The notional principal increases over time.
- Who Uses This & Why: A construction company financing a large project. They draw down their loan in stages (e.g., $10 million in month 1, $10 million more in month 6, etc.). An accreting swap is structured so the notional increases in lockstep with their increasing loan balance.
3. Forward-Starting Swaps
- What It Is: A swap where the terms are agreed upon today, but the swap period and payments begin at a future date.
- Who Uses This & Why: A corporation that knows it will issue a 10-year bond in six months. They like today’s interest rates and want to lock them in. They enter a 10-year, forward-starting swap (starting in 6 months) to hedge their future issuance.
4. Basis Swaps
- What It Is: An advanced swap where both legs are floating, but are tied to different floating-rate benchmarks.
- Who Uses This & Why: A bank has a portfolio of loans that earn interest based on the Prime Rate, but its own funding cost is based on SOFR. This creates a “benchmark mismatch,” or basis risk. The bank enters a basis swap to pay SOFR and receive the Prime Rate, locking in the spread between the two and hedging its mismatch.
5. Portfolio Overlays (Duration Management)
- What It Is: Using swaps as a capital-efficient tool to alter a portfolio’s risk profile without trading the underlying assets.
- Who Uses This & Why: A fixed-income fund manager holding $1 billion in bonds. They believe rates will fall (which is good for bonds). Instead of buying more bonds (which costs capital), they can receive fixed on a large notional swap. This synthetically increases the portfolio’s “duration” (sensitivity to interest rates), amplifying their gains if they are correct, all for very little upfront capital.
6. Asset Swapping (Swap Spread Speculation)
- What It Is: A strategy, often used by bond investors, to buy a fixed-rate bond and simultaneously enter an interest rate swap to convert its cash flows into a floating-rate return.
- Who Uses This & Why: An investor might do this to create a “synthetic” floating-rate note that pays more than other floating-rate notes on the market. It’s also a way to speculate on the “swap spread”—the difference between the fixed rate on a swap and the yield on a government bond of the same maturity.
7. Unwinding Swaps (Terminating for Value)
- What It Is: This isn’t a type of swap, but a critical strategy. If you are in a swap and interest rates have moved significantly in your favor, your swap has a positive market value. You can terminate (or “unwind”) the swap and receive a one-time cash payment from the counterparty.
- Who Uses This & Why: In Q3 2023, Bank of Hawaii terminated its existing pay-fixed swaps (which were valuable because rates had risen) to lock in gains, and then extended new swaps at the new, higher rates to continue its hedge. This is an active, expert-level hedging strategy.
Section 4: The 5 Critical Risks in the Swap Market (And How to Mitigate Them)
Swaps are powerful tools, but they are not free of risk. This market is “over-the-counter,” and with that customization comes significant dangers that beginners and experts alike must manage.
- The List:
- Counterparty (Default) Risk
- Basis Risk (The Imperfect Hedge)
- Liquidity Risk
- Market (Price) Risk
- Common Corporate Hedging Pitfalls
- The Explanation (Post-List):
1. Counterparty Risk
- What It Is: The risk that the other party in your swap agreement (your “counterparty”) goes bankrupt or otherwise fails to make its payments.
- Context (The 2008 Crisis): This is the single most important risk in the OTC market. When Lehman Brothers collapsed, it defaulted on thousands of swap contracts. This sent a shockwave through the system, as every party that was “in the money” (owed money by Lehman) suddenly had a massive loss. This systemic risk is what directly led to the new regulations in Section 5.
- How to Mitigate:
- Before Regulation: Bilateral “Credit Support Annexes” (CSAs), which require parties to post collateral (cash or securities) to each other.
- After Regulation: Central Clearing. Forcing standardized swaps through a Central Clearinghouse (CCP), which stands in the middle of the trade and guarantees payment, effectively eliminating counterparty risk.
2. Basis Risk
- What It Is: The risk that your hedge is imperfect. It arises when the risk you are hedging and the instrument you are using to hedge are not perfectly aligned.
- Example: You have a loan tied to the Prime Rate, but you hedge it with an IRS tied to SOFR. You think you’re hedged, but if a crisis causes the spread between Prime and SOFR to widen, you can still lose millions. Your hedge has “sprung a leak.”
- How to Mitigate:
- Use Basis Swaps (see Section 3) to hedge the spread between the two benchmarks.
- Structure “bespoke” swaps that perfectly match the underlying asset’s terms, which is the entire advantage of the OTC market.
3. Liquidity Risk
- What It Is: The risk that you cannot exit your swap position at a fair price.
- Why It Happens: Futures contracts are standardized and trade on an exchange, making them highly liquid. Swaps are custom-made (“bespoke”). If you have a highly customized, 17-year “accruing” swap, you can’t just “sell” it. You have to find a bank (likely the one that structured it) to quote you a termination price, and you will have to pay their bid/offer spread.
- Systemic Warning: At a market-wide level, liquidity problems are an early warning sign of systemic stress. When swap spreads (the difference between swap rates and Treasury yields) behave erratically, it can signal that liquidity is drying up for the entire banking system.
4. Market (Price) Risk
- What It Is: The most obvious risk: you speculate and you are wrong.
- Example: You are a speculator who believes rates will rise. You enter a swap to pay fixed 5% and receive floating. Instead, the central bank cuts rates, and the floating rate drops to 2%. You are now “out of the money” and losing 3% on the entire notional, every year, until maturity. This is the risk you are paid to take.
5. Common Corporate Hedging Pitfalls
For the corporate treasurer (the “beginner”), the biggest risks are not from speculation, but from improperly structured hedges that accidentally increase risk.
Section 5: The Legal & Regulatory Blueprint: Understanding the Market’s “Rules of the Road”
The 2008 crisis proved that the unregulated, “dark” OTC market could threaten the entire global economy. The framework below is the direct response to that crisis and now defines the market.
- The List:
- The ISDA Master Agreement (The “Constitution” of Swaps)
- The Dodd-Frank Act (U.S. Regulation)
- EMIR (European Regulation)
- The Explanation (Post-List):
1. The ISDA Master Agreement
- What It Is: The single most important document in the derivatives world. Published by the International Swaps and Derivatives Association (ISDA), this standardized “master” contract provides the legal framework for all OTC trades between two parties.
- How It Works: Instead of signing a new 50-page contract for every single swap, two banks will sign one ISDA Master Agreement. Then, every future trade is just a short, 1-page “Confirmation” that references the master, saving immense time and legal fees.
- Key Components:
- The Schedule: The customizable part of the master. Here, the parties negotiate critical terms, like which “Events of Default” (e.g., a credit downgrade) will trigger a termination, or which jurisdiction’s law will apply.
- The Credit Support Annex (CSA): This is the risk management attachment. It governs collateral. It forces parties to post margin (cash or bonds) to each other as the market value of their swaps changes, mitigating counterparty risk.
- The Core Concept: Netting. The ISDA’s greatest power is netting. If Bank A and Bank B have 100 swaps with each other and Bank B defaults, they don’t have 100 separate legal claims. The ISDA framework nets all 100 trades down to a single net payment (e.g., Bank A owes Bank B $5 million, or vice-versa). This dramatically reduces systemic credit exposure and is the foundation of market stability.
2. The Dodd-Frank Act (USA)
- What It Is: The 2010 US law passed in direct response to the 2008 crisis, with the goal of reducing systemic risk and increasing transparency in the swap market.
- Its Key Mandates:
- Mandatory Central Clearing: Dodd-Frank forces most standardized swaps (like plain-vanilla IRS) to be cleared through a Central Clearinghouse (CCP). This yanks counterparty risk out of the hands of the banks and gives it to a central, regulated utility that guarantees the trades.
- Mandatory Trade Reporting: To kill the “dark market” opacity, all swaps must be reported to Swap Data Repositories (SDRs), creating a public tape (for price and volume) for the first time.
- The “End-User Exception” (CRITICAL for businesses):
- Congress recognized that forcing a non-financial company (like an airline or hog farmer) to post margin for clearing would trap its working capital.
- The Rule: Dodd-Frank includes an “End-User Exception.” A non-financial entity can avoid the mandatory clearing requirement if it is using the swap to hedge or mitigate commercial risk. It must file an election with an SDR to prove it’s a hedge, not a speculation.
3. EMIR (European Regulation)
- What It Is: The European Market Infrastructure Regulation (EMIR) is the EU’s equivalent of Dodd-Frank.
- Its Key Mandates (Almost Identical):
- Clearing Obligation: Mandates central clearing for eligible OTC derivatives.
- Reporting Obligation: Mandates reporting of all derivative contracts (OTC and exchange-traded) to Trade Repositories.
- Risk Mitigation: For any swap not centrally cleared, EMIR mandates strict risk-mitigation techniques, such as formal collateral exchange (the CSA), portfolio reconciliation, and “portfolio compression” (terminating offsetting trades to reduce notional).
Section 6: Swaps vs. Futures: A Comparative Guide
For beginners, this is one of the most common points of confusion. Both are derivatives, but they live in different universes. A swap is a custom suit, while a future is an off-the-rack suit.
- The List (as Table Headers):
- Trading Venue
- Standardization
- Counterparty Risk
- Liquidity
- Primary Use
- The Explanation (Post-List):
The reason a corporation WOULD choose a high-risk, low-liquidity swap over a low-risk, high-liquidity future is for customization. A future might only be available for a March expiration, but the company needs to hedge its risk until April 17th. A swap can be bespoke (custom-tailored) to that exact date, creating a “perfect hedge” and eliminating the basis risk that a future would create.
Section 7: Busting the 3 Biggest Myths About Swaps
The swap market’s complexity and its role in 2008 have created powerful myths. A true market expert knows how to separate a “scary headline” from the “boring reality.”
- The List:
- Myth: The “$600 Trillion Notional” Market is All “Real Money” at Risk.
- Myth: Swaps are Only for High-Stakes Gambling.
- Myth: The Bank is “Betting Against Me” When I Trade.
- The Explanation (Post-List):
1. Myth: The “$600 Trillion Notional” Market is All “Real Money” at Risk.
- The Myth: You’ll see headlines: “Derivatives Market Dwarfs Global GDP”. This implies a $600 trillion time bomb.
- The Truth: This $600 trillion figure is the total notional principal. As we learned in Section 1, this is the reference amount for calculating payments. It does not change hands (in an IRS).
- The Reality: If you have a 10-year, $100 million swap, the “at risk” amount is not $100 million. The risk is the net present value of the small interest payments. The “replacement cost” (the actual credit exposure) is a tiny fraction of the notional value. Busting this myth is the first step to understanding the market.
2. Myth: Swaps are Only for High-Stakes Gambling.
- The Myth: Because of their use in 2008 and by hedge funds, many see swaps as purely speculative, “bad boy” instruments.
- The Truth: This confuses one use (speculation) with the entire market. The explosive growth of swaps since the 1980s was driven by hedging. The most common use of swaps is a “plain vanilla” IRS used by a boring, non-financial company to reduce risk by transforming its variable-rate debt into a synthetic fixed-rate loan. This is a fundamentally conservative risk-management practice.
3. Myth: The Bank is “Betting Against Me” When I Trade.
- The Myth: “If I enter a swap with a bank to pay fixed, the bank must be receiving fixed. That means the bank is betting rates will fall and I’m betting they’ll rise. The bank is my adversary.”
- The Truth: This is a common client misunderstanding. The bank is (usually) not a speculator; it is a market-maker or intermediary.
- The Reality: The bank’s job is to earn a fee (the bid/ask spread), not to take a bet. When you “pay fixed” to the bank, the bank immediately “warehouses” that risk. They will either:
- Find another client who wants to “receive fixed” and match you up (earning the spread in the middle).
- Hedge their own new position instantly in the interbank market.
- The bank is acting more like a broker than a casino. Their primary profit comes from this spread, not from “beating” their clients.
Frequently Asked Questions (FAQ) Section
Q1: What is a swap in simple terms?
A: A financial swap is a contract between two parties to exchange two different streams of cash flows over a set period. The most common example is an interest rate swap, where one party agrees to pay a fixed interest rate in exchange for receiving a floating interest rate from the other party.
Q2: Can I, as a retail investor, trade swaps?
A: Generally, no. Swaps are “over-the-counter” (OTC) contracts, meaning they are private agreements between large institutions (like banks, corporations, and hedge funds). Retail investors cannot “buy a swap” the way they buy a stock. However, retail investors can get indirect exposure through investment products like certain ETFs or mutual funds that use swaps to achieve their investment objectives.
Q3: What is the difference between a swap and a futures contract?
A: A swap is a customized private (OTC) contract, while a future is a standardized contract traded on a public exchange. You use a swap when you need a “perfect,” bespoke hedge (e.g., for 7 years and 2 months). You use a future when you need a liquid, short-term, standardized hedge (e.g., for 3 months).44 (See Section 6 table for a full breakdown).
Q4: What is SOFR and why did it replace LIBOR?
A: SOFR (Secured Overnight Financing Rate) is the new global benchmark for floating-rate derivatives. It replaced the old benchmark, LIBOR, which was discontinued. The reason for the change was that LIBOR was based on estimates submitted by banks and was found to be subject to widespread manipulation. SOFR is considered more robust because it is based on actual transaction data from the overnight lending market.
Q5: What is an ISDA Master Agreement?
A: It is the standard legal “master” contract that governs all over-the-counter (OTC) derivative trades between two parties. It sets the “rules of the road” for payments, defaults, termination, and (most importantly) allows for the netting of all transactions into a single payment in case of a default.
Q6: What is the risk of a $10 million swap?
A: This is a common misconception. The risk is not $10 million. That $10 million is the “notional principal,” which is just a reference number used to calculate the interest payments. The actual risk is the net present value of the future interest payment stream. If the swap is terminated, this value (which could be positive or negative) is the “termination payment,” and it is typically only a small fraction of the notional amount.
