What Is Rollover In Forex?

The value of each world currency is often tied with its interest rates. Since you’re betting on the value of one currency against another, trades involve two different interest rates. And traders should pay attention to the payment, which is applied when you hold a position overnight. Depending on the interest rate of the two currencies, you can either profit or lose money from it.

What is Rollover?

When conducting a transaction, with banks in other nations, banks deal with foreign currencies and pay the interbank rate. The interbank rate will differ depending on the kind of currency you hold in the Forex market. Such interest rates will dictate the amount of rollover a trader will have to pay for an open position.

Rollover is the interest earned or charged for keeping an open position overnight.

Using rollover for profit is a useful technique for Forex trading. This applies to traders who don’t want to take actual delivery of the currency they are buying but earn from exchange rate fluctuations instead.

Traders need to determine which currency offers a high yield and which offers a lower one. When the markets close for the day, the position can generate profit if a borrowed currency has a lower interest rate. On the opposite side, traders might be charged for the interest rate if the purchased currency has a lower interest rate. If you don’t want your positions to be subject to these calculations, you need to close them by the end of the day.

End of Day in Forex

Rollover transactions are carried out when a position is being held open to the next value date. Therefore, rollover is linked to the terms trade and value date. There is also a need to determine what would count as the end of the day, taking into account different international markets.

The trade date or entry date occurs when a trader enters an order for purchasing/selling an asset, and the broker accepts it. When the trade settles, it is considered the value date, meaning when either party in the transaction receives or pays home currency, in exchange for foreign currency.

But what is considered the end of the day if the working hours of the Forex market travel across different time zones? In this 24-hour market, the community had agreed upon what is considered the end of the trading day. Following the established practice, the trading day ends at 5 p.m. Eastern Standard Time (EST). Open positions are considered overnight after 5 p.m. EST.

The Forex trading day ends at 5 p.m. Eastern Standard Time (EST).

• If you are in New York, rollover takes place at 5 p.m.
• For traders in London, it will be 10 p.m.
• If you are in Tokyo, positions are rolled over at 6 a.m. the next day.
• For Sydney, it corresponds to 7 a.m. the next day.

Rollover During Weekends and Holidays

The amount of interest will vary depending on how many days it took to rollover. Bear in mind that the rollover interest is calculated every day, which includes weekends and holidays.

Practically every bank in the world is not open on Saturdays and Sundays. Even with no rollover on the weekends, the rate is still charged/earned over these periods. This means that the Forex market will book an interest amount equal to three days of rollover on Wednesdays.

Interest rates still apply over the weekend so the market will book an amount equal to three days of rollover on Wednesdays.