Rollover rate forex

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.

Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

High risk investment notice: Trading forex/CFD's on margin carries a high level of risk and may not be suitable for all investors as you could sustain losses in excess of deposits. Leverage can work against you. Due to the certain restrictions imposed by the local law and regulation, German resident retail client(s) could sustain a total loss of deposited funds but are not subject to subsequent payment obligations beyond the deposited funds. Be aware and fully understand all risks associated with the market and trading. Prior to trading any products offered by Forex Capital Markets Limited, inclusive of all EU branches, FXCM Australia Pty. Limited. Limited, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the "FXCM Group"], carefully consider your financial situation and experience level. If you decide to trade products offered by FXCM Australia Pty. Limited ("FXCM AU") (AFSL 309763), you must read and understand the Financial Services Guide, Product Disclosure Statement, and Terms of Business. The FXCM Group may provide general commentary which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. The FXCM Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on the FXCM Group’s websites prior to taking further action.

The FXCM Group is headquartered at 55 Water Street, 50th Floor, New York, NY 10041 USA. Forex Capital Markets Limited ("FXCM LTD") is authorised and regulated in the UK by the Financial Conduct Authority. Registration number 217689. Registered in England and Wales with Companies House company number 04072877. FXCM Australia Pty. Limited ("FXCM AU") is regulated by the Australian Securities and Investments Commission, AFSL 309763. FXCM AU ACN: 121934432. FXCM Markets Limited ("FXCM Markets") is an operating subsidiary within the FXCM Group. FXCM Markets is not regulated and not subject to the regulatory oversight that govern other FXCM Group entities, which includes but is not limited to, Financial Conduct Authority, and the Australian Securities and Investments Commission. FXCM Global Services, LLC is an operating subsidiary within the FXCM Group. FXCM Global Services, LLC is not regulated and not subject to regulatory oversight.

Past Performance: Past Performance is not an indicator of future results.

Copyright © 2017 Forex Capital Markets. All rights reserved.

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.

Understanding Foreign Exchange Rollover.

by Antonio Sousa.

Foreign exchange rollover, what is it?

Rollover is the interest paid or earned for holding a currency spot position overnight. Each currency has an overnight interbank interest rate associated with it, and because forex is traded in pairs, every trade involves not only 2 different currencies but also two different interest rates. However, unlike what many traders think, foreign exchange rolls are not based on central bank rates. Instead, forex rolls are constructed using forward points which are mostly based on overnight interest rates at which banks borrow unsecured funds from other banks. After all, the foreign exchange market works over-the-counter. Market and spot trades need to be settled and rolled forward every day. If the interest rate on the currency you bought is higher than the interest rate of the currency you sold, you will earn a positive roll. If the interest rate on the currency you bought is lower than the interest rate on the currency you sold, then you will pay rollover.

Currently, most forex rolls are low and some are even negative, why?

In the last two years, central banks around the world took a number of measures to increase liquidity and stabilize financial markets. Among the actions taken by central bankers was a significant reduction in overnight lending rates and major injections of capital into the banking system. Eventually, after restoring some confidence on the financial system, central bankers succeeded in bringing down interbank rates. In other words, it became cheaper for banks to lend money between themselves. However, it also meant that the interest paid or earned for holding a currency position overnight would be significantly lower. In this situation, it may happen that both rolls for buying and selling currencies are negative because banks and other foreign exchange market players charge a small spread on interest paid or earned.

How do carry trades work?

Traders looking to “earn carry” will buy a high-yielding currency while simultaneously selling a low-yielding currency. So, assuming the exchange rate remains constant, an investor is able to earn the difference in interest between the two currencies. The foreign exchange carry trade has a successful track record that goes back more than 25 years. However, the recent shift in the world’s financial markets towards lower interest rates and higher risk aversion makes it more difficult to make successful carry trades.

When is rollover booked?

5 pm in New York is considered the beginning and end of the forex trading day. Any positions that are open at 5 pm sharp are considered to be held overnight, and are subject to rollover. A position opened at 5:01 pm is not subject to rollover until the next day, while a position opened at 4:59 pm is subject to rollover at 5 pm. A credit or debit for each position open at 5 pm generally appears on your account within an hour, and is applied directly to your accounts balance.

How do banks account for Weekends and Holidays?

Most banks across the globe are closed on Saturdays and Sundays, so there is no rollover on these days, but most banks still apply interest for those two days. To account for that, the forex market books 3 days of rollover on Wednesdays, which makes a typical Wednesday rollover three times the amount on Tuesday. There is no rollover on holidays, but an extra days worth of rollover usually occurs 2 business days before the holiday. Typically, holiday rollover happens if either of the currencies in the pair has a major holiday. So, for Independence Day in the USA, which is on July 4, when American banks are closed and an extra day of rollover is added at 5 pm on July 1 for all US dollar pairs.

You can view how rollover is counted for holidays using our Rollover Calendar Page .

Why should you invest in currencies, even with low interest rates?

Even though, making carry trades has been less appealing over the last few months, the currency market is still one of the best places to invest. After all, the forex market is still the most liquid financial market in the world with an average daily volume of over US$3 trillion, according to the Bank for International Settlements. This is more than three times the total daily volume of the stocks and futures markets combined. Moreover, with a no-dealing-desk forex broker, every trade is executed back-to-back with one the world's premier banks which compete to provide your broker with the best bid and ask prices. This competition between banks can reduce the potential for market manipulation by price providers.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Upcoming Events.

Forex Economic Calendar.

Past performance is no indication of future results.

DailyFX is the news and education website of IG Group.

Rollover.

In this lesson we are going cover Rollover. We will start by explaining the concept of rollover then go into an example of how it is calculated. We will show you how to take advantage of rollover, as many successful traders make it an integral part of their trading strategy.

Rollover is the interest paid or earned for holding a position overnight. The target interest rate associated with each currency (generally set by that currency’s Central Bank) is listed on the home page of Dailyfx. Here is an example:

As we covered in reading a forex quote, any time you take an FX position you are buying one currency and selling in the other. Your position will therefore earn the interest rate of the currency that you have bought, and you will owe the interest rate of the currency that you sold. The net difference will either be credited to your account or debited from your account every day at rollover, which is 5pm Eastern US Time. It’s important to note that rollover only occurs on positions that are held open at 5pm Eastern Time. If you close a trade before the rollover time, or open it after the rollover time, no interest will be paid or owed.

Let's take a look at an example.

When you buy the AUD/USD pair, you are buying the Australian Dollar, and selling the US Dollar.

Here is the math:

In this example we are buying one 10k lot of AUD/USD in a US Dollar based account. So we are going to earn 3% annually on 10,000 AUD. This comes out to 300 AUD per year. To determine one day’s worth of rollover we’ll divide by 365, which gives us 0.82 AUD in interest per day.

On the other side of the trade, we are short approximately $8,800 USD (the AUD/USD rate is 0.8780 at the time of writing). For this side of the trade, we owe 0.25% on the US Dollars that we are short. So 8,800 *0.0025 is $22 US. Divide that by 365, and you get $0.06.

Now we know that if we buy one 10k lot of AUD/USD we’ll earn 0.82 AUD and owe $0.06 USD. To net these two together, we’ll first convert the 0.82 AUD to USD Dollars. To do that we simply multiply by 0.8780 (the current AUD/USD Spot rate) which gets us to $0.72 US.

$0.72-$0.06 = $0.66. So, according to our math, we should earn about $0.66 US per day for buying one 10k lot of AUD/USD. Now, log into your trading platform and see what the roll amount is.

Why doesn’t it match? The reason is that the interest rates that we used in our example: 3% for the AU Dollar and 0.25% for the US Dollar, are simply the target rates set by the central banks of those countries. Market participants (i. e. banks) will determine where the actual overnight lending and deposit rates should be. So, unfortunately, our calculation and this example here is just to help understand rollover conceptually. Doing the calculation based on target rates will never get you to the exact rollover value that is charged or earned, but it is a good exercise to understand how rollover works.

The next question that many traders ask is “why do we get charged more then we can earn on Rollover?” If, for example, we’re long AUD/USD we’ll earn $0.49, but if we are short we will owe $1.07. The answer is that banks introduce a spread on the interest rates. They will pay us a bit less than the overnight rate when we lend to them, and they will charge us a bit more then than the overnight rate we you borrow from them. The end result is that, unfortunately, we traders always get charged more then we earn when it comes to rollover. This is also why both rolls can both be negative at times.

That doesn’t negate the powerful impact that rollover can have on a trading strategy. Some traders will only go into positions that will allow them to earn at rollover.

Let’s look at another example.

Let’s say going short one 10k lot of GBP/AUD pays us $0.81 a day in rollover. That may not sound like a lot, but it works out to $295.65 of interest a year we will earn. And that interest is earned even if the pair doesn’t move a single pip. Also considering that we may have only had to post around 2% or less in margin to hold that trade, $295 is a significant percentage return. Holding a position long term to collect the interest rate differential is referred to as a “carry trade”, and is one of the most popular strategies in the market.

Now we have to keep in mind that a carry trade certainly isn’t risk-free. The spot rate itself will of course fluctuate, and that can work for or against us. Also, interest rates often change and the amount that you earn or owe each day will therefore change as well. So if you are going to be a carry trader, be sure to stay on top of interest rate movements and sentiment.

An important thing to note is Wednesday Rollover. This can be a bit confusing, so don’t worry if you don’t get it right away.

FX is generally a two-day deliverable market. That means that positions will settle 2 days from when they are opened. Wednesday at 5pm, positions get rolled over to Thursday positions. These positions would technically settle on Saturday. Banks are closed on Saturday, so instead they are rolled through the weekend to Monday. So the short of it, is that Wednesday rollover is typically 3 days worth of interest. There is no rollover applied to positions that are held open on Saturday and Sunday. Holidays can also affect the rollover schedule. You can easily reference the special holidays and how they affect rollover on our regularly updated Rollover Calendar .

So that covers rollover and how it is calculated. Hopefully you now understand a bit about how to take advantage of it as well.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Upcoming Events.

Forex Economic Calendar.

Past performance is no indication of future results.

DailyFX is the news and education website of IG Group.