Resources | Global Futures
What is Rollover?
Rollover is the interest paid
or earned for holding a position overnight. Each currency has an
interest rate associated with it, and because forex is traded in
pairs, every trade involves not only two (2) different currencies,
but their two (2) different interest rates. If the interest rate on
the currency you bought is higher than the interest rate of the
currency you sold, then you will earn rollover (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
(negative roll). Rollover can add a significant extra cost or profit
to your trade.
buy the EUR/USD pair, you are buying the Euro, and selling the US
Dollar to pay for it. If the Euro interest rate is 4.00%, and the US
rate is 2.25%, you are buying the currency with the higher interest
rate, and you will earn rollover (about 1.75% on an annual basis).
If you sell the EUR/USD pair, you are selling the currency with the
lower interest rate, and you will pay rollover (about 1.75% on an
annual basis), since you are paying the Euro interest rate and
earning the US interest rate.
One of the most popular forex
strategies in the the twenty-first century has been the Carry Trade.
The Carry Trade takes advantage of both the differences in interest
rates between countries and the high available leverage of the forex
*Leverage can dramatically amplify your profits and
losses. Trading foreign exchange with a high or even moderate level
of leverage may not be suitable for all investors.
When is rollover booked?
5:00 PM in New York is
considered the beginning and end of the forex trading day. Any
positions that are open at 5:00 PM ET sharp are considered to be
held overnight, and are subject to rollover. A position opened at
5:01 PM is not subject to a rollover until the next day, while a
position opened at 4:59 PM is subject to a rollover at 5:00 PM.
A credit or debit for each
position open at 5:00 PM appears on your account within an hour, and
is applied directly to your account balance.
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 three (3) days of rollover on
Wednesdays, which makes a typical Wednesday rollover three times
(3x) the amount on Tuesday. There is no rollover on holidays, but an
extra days worth of rollover is booked two (2) business days before
the holiday. Typically, holiday rollover happens if any of the
currencies traded has a major holiday. Therefore, Independence Day
in the USA, July 4, closes American banks, and an extra day of
rollover is added at 5:00 PM on July 1 for all US Dollar pairs.