In
foreign exchange trading (FX), a rollover is the action taking place at end of day, where all open positions with
value date equals SPOT, will be
rolled over to the next
business day
A business day normally means any day except a legal holiday. It may also mean a business day of operation, any of the days an organization operates. It depends on the local workweek which is dictated by local customs, religions, and business ...
. This happens since in FX trading the trader doesn't want to actually buy the traded currencies but to continue to trade until position is closed. For example, on Monday all position with value date of Wednesday (in case of T+2) will be rolled over and the value date will be updated for Thursday. Position with value date of Friday will be updated with value date of next Monday.
Trading platforms offer rollovers but the process involves a rollover interest fee which is calculated according to the difference between the interest rates of the traded currencies. If the interest rate on the trader's
long position is higher than the rate on the
short position, the trader receives the interest. If the interest rate on the trader's short position is higher than the rate on the long position, then the trader pays the interest. For weekends and holidays, the rollover is multiplied by the number of days of rollover.
Calculation
The calculation is based on the difference between base and quote currencies. Thus, it is needed to subtract the
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
of the base currency from the quote currency's interest rate. Then, it is needed to divide the result by 365 times the base
exchange rate
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...
.
However, usually, the rollover is shown in the
trading platform or on the
broker's website, which frees the trader from unnecessary calculations. Rollover is also known as a swap fee. Thus, to check the rollover, it is needed to find a swap (long and short) on the broker's website or in the trading platform.
See also
*
Refinancing
References
Foreign exchange market
Settlement (finance)
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