You’ve probably been learning a lot about the currency trading market. You may even have begun to invest in it, but what is rollover? How can knowing what a rollover is benefit you?
A rollover happens when the settlement of a trade rolls over to the next value date. The cost of this process is based on the interest rate differential that is between the two currencies. If you have any positions open at 5pm EST, then there is a daily interest rate rollover that either you will have to pay or you will end up earning. It all depends on your margin and position in the market. If you don’t want to earn or pay interest on your position, then you need to make sure that your positions are closed by 5pm EST. This time is the established end of the market day.
Every single currency trade involves the trader borrowing one currency to buy another currency. This means that interest rollover charges are a necessary part of foreign currency trading. This interest is paid on the currency that you borrow and it is earned on the currency that you buy. If the investor buys a currency that has a higher interest rate than the one they are borrowing, then the investor will make a profit as a result. The investor must be on a 2% margin in order to earn that profit, though.
Now you can take your knowledge of rollovers and put it to use in your trading. Before the close of the market day, decide if you want to close your positions. Closing them may prevent you having to pay the interest rate, but it can also stop you from earning funds from those same interest rates. By Ken Charnley
What is Rollover in Currency Trading?
