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What Is Rollover?

FXCM Research Team Written by FXCM Research Team

Just as money held in a bank account overnight accrues interest, money held in a forex position overnight also accrues interest—or what in forex trading is called rollover.

Rollover is a consequence of the fact that every currency is associated with the interest rate of its country of origin. If the interest rate of a currency being bought is higher than the interest rate of a currency being sold in an overnight trade, the trader will earn positive interest payments, or positive carry.

However, if the interest rate of a currency being bought is lower than the rate of a currency being sold, then there will be negative carry, and the trader's account will be charged the difference between the two rates. The rate of rollover accrual is based on the overnight interest rates paid by banks for the currencies being traded, and not on the country's base interest rate.[1]

Rollover is credited to accounts after 5 p.m. each day at the close of the trading hours. It will be credited for each day a position is held during the trading week and also as one day for any weekend periods. Forex trading has a two-day settlement period, which means rollover for the weekend is credited two days after the end of the weekend (on Wednesday). Rollover is not paid on holidays.[2]

Forex brokers will typically inform traders through their trading platforms of the amount of rollover they can expect to be paid or charged for holding a given position overnight.[2]

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Carry Trade

One important implication of rollover is that it can be used as a strategy to earn greater gains through a carry trade. In a carry trade, traders buy a currency to hold overnight in order to earn money with interest.

Currencies that are associated with high or low national interest rates can become particular targets for traders interested in profiting on interest rate differentials between countries. However, holding positions overnight may also involve greater risk, because traders may be exposed to larger price fluctuations or reversals over time.[3]

Summary

Rollover is an important factor to consider when trading forex. Rollover credits or debits to an account can significantly increase profits or costs of trading over time. Traders may want to calculate the amount of rollover interest they can expect to pay or earn before committing to overnight positions.

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.

FXCM Research Team

FXCM Research Team consists of a number of FXCM's Market and Product Specialists.

Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.

References

1

Retrieved 30 Oct 2015 https://worldcrunch.com/culture-society/

2

Retrieved 30 Oct 2015 https://books.google.com/books

3

Retrieved 10 Nov 2015 https://www.globalsecurity.org/military/world/russia/energy-oil.htm

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Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

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