Rollover forex definition

What Is Rollover In Forex?

In forex, “rollover” refers to the value of accrued interest on a spot currency position during the overnight holding period. Interest rates, leverage, investment horizon and the currencies being traded are instrumental in quantifying rollover.

When Is Rollover Calculated?

In forex, rollover is calculated for application to an investor’s trading account Monday through Friday at 5 p. m. Eastern Standard Time.

On weekends, the forex market is closed for business, but rollover values are still being counted. Typically, forex books an interest amount equal to three days of rollover on Wednesdays. Holidays during which the forex market is closed still provide a rollover valuation and are accounted for two business days in advance.

For intraday traders, rollover is not a concern. If a position is opened after 5 p. m. of the previous day, and closed before 5 p. m. of the current day, then no interest is paid or owed. However, if trading durations are longer than the intraday time period, and a trade is held through the 5 p. m. cut off, the trading account will be receive a credit or debit reflecting the rollover value. In the event that this occurs, the trading account will be adjusted within an hour of the daily 5 p. m. EST cut-off time.

Calculating Rollover.

In forex trading, currencies are traded in pairs. The first currency in the pair is the “base” currency, and the second is known as the “counter” currency. Essentially, rollover is the difference between the interbank interest rate of the base and counter currencies.

Rollover for a specific currency pairing can be either a positive or negative value. Ultimately, the trader is responsible for the realisation of any gains or losses as result of the roll. For instance, if a trader is holding a long position in the EUR/USD at 5 p. m. EST, rollover will be the difference in the value received for holding euros and the value paid for being short U. S. dollars.

If revenue earned from interest through being long euros is greater than the cost associated with holding the offsetting US dollar short position, then the rollover is positive and the trader realises a net gain. If the interest costs are greater for holding the USD shorts, then rollover is negative, and the trader assumes the loss.

Interest Rates.

One of the key aspects of calculating rollover for a currency trade is the interest rate attributed to each currency in the pair. As a point of reference, “target” interest rates are established exclusively by a country’s central bank for their domestic currency and released to the public. Target rates are widely viewed by short-term traders as ballpark estimates of the actual interest rates that will be used in determining the rollover value for a specific trade.

In practice, the interest rate factor applied to the rollover calculation is the spot rate of the currency pairing adjusted by a specified number of “forward points.” Forward points represent a basis point adjustment to the exchange rate of a currency pair. They serve primarily as a reflection of the overnight or interbank interest rate markets, and they’re used to account for interest rate volatility. Because currency trades take place continuously in the short-term, changes in the interbank rates are accounted for and adjusted through adding or subtracting assorted quantities of forward points from the spot exchange rate.

Revenue attributed to rollover can represent a substantial credit or debit to the trading account. Depending upon the trading strategy, nominal value associated with rollover may represent a meaningful profit or loss and directly impact the trading operation’s bottom line.

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Rollover.

Definition.

Rollover is the interest paid or earned by a trader for holding a position overnight. Since every currency trade involves borrowing one currency to buy another, interest rollover charges are part of FX trading. Interest is paid on the currency that is borrowed, and earned on the one that is bought.

For example, let.

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Rollover definition.

Rollover has a particular significance in relation to IG's platform. Here, we define rollover in general investing and explain what it means to you when trading with IG.

In trading, a rollover is the process of keeping a position open beyond its expiry.

Many trades have an expiry date attached to them, at which point the position will automatically close and any profits or losses will be realised. In some circumstances, however, the trade can be rolled over. This means that profits or losses will be realised and the trade gets a new expiry. Often, a rollover will come with an associated charge.

On your IG account, you may receive a discount in the closing or opening spread when rolling your exposure onto a later dated contract.

Futures and forward contracts, for example, can sometimes be rolled over instead of expiring. In this instance, the price of opening a new position will be factored into the cost. In options, rolling over an option means buying a similar option with a later expiry date.

On shorter-term trades like Spot FX, there is a cost associated with keeping the position open overnight. This can also be known as the cost of carry.

We offer forward contracts on spread bets and CFDs, with rollovers available up until 15 minutes before the position is due to expire. On daily funded bets and daily CFDs, a rollover for keeping a position overnight will be calculated differently for forex positions and other markets.

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Rollover Rate (Forex)

DEFINITION of 'Rollover Rate (Forex)'

A rollover rate, in regard to forex, is the net interest return on a currency position held by a trader. The rollover rate converts net currency interest rates, which are given as a percentage, into a cash return for the position. Since a trader is long one currency and short another, the net effect of both interest rates has to be calculated.

In forex, a rollover means that a position is extended at the end of the trading day without settling. For traders, most positions are rolled over on a daily basis until they are closed out or settled. The majority of these rolls will happen in the tom nex market. Meaning they are due to settle tomorrow and are extended to the following day.

BREAKING DOWN 'Rollover Rate (Forex)'

For example, an investor has a long 100,000 EUR/USD at a rate of 1.3000. The EUR interest rate is 2%, or a daily rate of 0.0054%, and the USD is 3% or a daily rate of 0.0081%.

The interest on the EUR is (100,000 * 0.0054%) 5.40 EUR; the USD costs (130,000 * 0.0081%) 10.53 USD. Converting the EUR to USD, 5.40 * 1.3000 = USD 7.02. The net USD amount is 7.02 - 10.53 = - 3.51, which is divided by the 100,000 position. On a long EUR/USD position, the rollover costs 0.00003562, or 0.3562 pips.

While the daily interest rate premium or cost is small, investors and traders who are looking to hold a position for a long period of time should take into account the interest rate differential. It is possible that over a period of time you could buy currency X and sell it at a lower rate and still make money, assuming the currency you owned was yielding a higher rate than the currency you were short.