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Informative Articles**

What Is Rollover Interest In The Forex Market?

In the spot forex market, all trades must be settled in two business days. A rollover refers to the process of closing open position for today's value date and the opening of the same position for the next day's value date at a price reflecting the difference in interest rates between the two currencies.

In accordance with international banking practices, Forex brokers automatically rolls over all open positions to the next date at 5 PM EST for settlement.

Rollover involves exchanging the position being held for a position expiring the following settlement date. For example, for trades executed on Monday, the value date is Wednesday.

However, if a position is opened on Monday and held overnight, the value date is now Thursday. The exception is a position opened and held overnight on Wednesday. The normal value date would be Saturday; because banks are closed on Saturday the value date is actually the following Monday. Due to the weekend, positions held overnight on Wednesday incur or earn an extra two days of interest.

Trades with a value date that falls on a holiday will also incur or earn additional interest. Forex Traders can earn interest on

rollovers, depending on the direction of their positions and interest rate differential between the two currencies involved.

For instance, the primary interest rates in Great Britain are much higher than in Japan, so if a trader buys GBP, he/she will earn interest at 5 PM EST time. on the other hand, if he/she sells GBP in this currency pair, he/she will pay interest at 5 PM EST time.

Overnight Interest/Rollover is automatically paid to a client's account after buying a currency with greater Interest Rate in its country, and charged to a client's account if the country issuing this currency has smaller Primary Interest Rates.


About the Author: Martin Maier is the Founder of Fenix Capital Management LLC www.isnare.com

 
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Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest / trade in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading.

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