Forex Rollover | Rakuten Securities HK
Forex rollover refers to the interest paid or earned when holding an open position overnight. Its calculation is according to the difference of interest rate between two currencies since forex is traded in pairs.
Basic concept of forex rollover
In the forex market, forex rollover is the process of prolonging the settlement date of an open position. In most of the currency trades, a trader must take delivery of the bought currency two days after the transaction takes place. But, by rolling over their position, concurrently concluding or closing the existing position at the everyday closing rate, and then re-entering the trade at the new opening rate the following trading day, the trader prolongs the settlement time by one more day.
Forex rollover is the interest which is paid or received for holding an open position at the end of a trading day. Every currency in the forex market has an interest rate linked with it, and it may fluctuate on an everyday basis. Forex trades for currencies takes place in pairs, and every trade includes only two different currencies, and each currency has a different interest rate. In a nutshell, rollover is estimated based on the interest rate differential occurring between the two currencies.
No rollover on weekends
During Saturdays and Sundays, most banks stay close around the world. So there is no rollover for those days. On the other hand, most banks still apply interest for the weekends. To deliver substantial account for that, the forex market records three days of rollover on Wednesdays of the weeks. Similarly, there would be no rollover on holidays, but there would be an additional day’s rate of a rollover occurring two business days before the holiday. Normally, holiday rollover occurs if any of the currency in the pair traded has a key holiday. Rollover can provide a major extra charge or profit to your trading position.
What Does Forex Rollover Tell You?
The forex rollover rate adapts the currency interest percentage rates into a cash return for the position of trade. A rollover interest pay is evaluated based on the difference between the interest rates of two different traded currencies. If the rollover rate comes positive, an investor would gain from it. And if the rollover rate is negative, it would cost the investor.
In simple terms, a rollover means that a trading position stays open at the end of the trading day and is extended without settling. For most traders, trade positions are rolled over on an everyday basis up until they are settled.
Even though the daily interest rate charge is small, traders and investors who are considering to hold a trading position for an extended period of time should take into consideration the difference in interest rate between two currencies in a pair. It is quite possible that during a period of time, you could buy a currency and sell it at a lower price and still be able to make some good money. However, it is only possible if the currency you held was providing a higher rate as compared to the currency you were short at.
In order to assess the forex rollover rate or a minimal amount, as a trader, you would need three main things including, the size of the trade position, the pair of currency, and the interest rate for each currency in the pair. After the calculation, the result would give you a general estimate of what the rollover could be. Nevertheless, the real rollover could see some deviation as the central bank offers target rates and the rollover is a market relying on market conditions that sustain a spread. The program of rollover credit or debit is different for Rakuten FX and Trading Station platforms.
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