Forex Rollovers

Despite the powerful U.S. dominates many markets most of Spot Forex is still traded through London in the UK. So for our next description we will use the time in London. Offering the best in foreign exchange transactions done on time. SPOT offers almost always due to settlement two business days later. This is known as the value date or delivery date. At that time, counterparties theoretically take delivery of the currency have been sold or purchased.

In Spot FX the most part the end of a business day is 21:59 (London time). The positions are open at this time is automatically extended until the next business day, which in turn ended in 21:59.

It is necessary to avoid the actual delivery of currencies. As Spot FX is predominantly speculative most traders do not want time to take delivery of the currency. Be informed to always clear the position of broker.

Many brokers are already automatically and in policies and procedures. Act to shoot the currency pair is called tom.next, which means tomorrow and the next day.

Only to talk about it, your agent will automatically rollover your position unless you tell them that you really want the delivery of the currency. Another thing to note is that most leveraged accounts can not actually deliver the currency as there is no shortage of capital to complete the transaction.

Remember that if you are trading on margin, you must apply for a loan from your broker for the amount under negotiation. If you have a property that the agent has advanced $ 100,000 despite not actually $ 100,000. Brokers usually charge the interest rate differential between two currencies if you rollover your position. This problem usually occurs only if you rolled over the position and if the positions are opened and closed on the same day.

To calculate the interest of the agent normally close your position at the end of the workday and again reopen a new position almost simultaneously. It opens a lot ($ 100,000) EUR / USD position Monday, May 15 at 11:00 in the exchange rate of 0.9950.

Levels fluctuate during the day and at 22:00, this figure is 0.9975. Broker closes your position and reopens a new position with a different value date. The new position is open from 0.9976 to 1 pip difference. Respect of a pip reflect differences in interest rates between U.S. dollar and the euro.

In our example, which are long and short Euro U.S. Dollar. As the U.S. dollar in the sample had a higher rate of the euro to pay a premium of 1 pip.

Now the good news. If you have reversed the position and were from dollars to euros in the short and long will the interest rate differential of 1 pip. If the first named currency has interest rates below those of a day in the second currency, then pay the interest differential if you bought that currency. If the first named currency has an interest rate higher than the second currency then you will get the interest rate differential.

To simplify the above. If you are long (bought) a particular currency and the currency has a higher interest rate that you get overnight. If you are short (sold) the currency with higher interest rates last night, you lose the difference.

I want to emphasize here that although we some depth to explain how it works, the agent calculates for you. The purpose of this paper is just to give you an idea of ​​how the forex market.