: Leveraged positions with interest rate swaps Why is a position in an interest swap a leveraged position (for instance when considering a plain vanilla swap, i.e. fixed for floating swap)?

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With an interest-rate swap, you are getting exposure to fixed-income cash flows that are based on notional amounts that you don't typically own.

For example, if you are on the paying end of a fixed rate of 4% on 0MM notional, you don't need to have 0MM in capital (or own 0MM worth of bonds!). You only need sufficient capital to satisfy the margin requirements of the dealer / clearer... which will be considerably less than 0MM. Hence the "synthetic" nature of swaps and the leverage built in to the product.