What Is Rollover Interest in the Forex Market?
by John Arnold
An interesting aspect of Forex trading is the Rollover Interest. Now, you might be wondering what is Rollover Interest? Rollover Interest is basically the interest that will be debited or credited from your account for open positions that are held overnight. As you might already know, all open positions need to be closed to complete the trade, if the open position is closed overnight it will incur an interest based on if it is a buy or a sell. This interest is termed as Rollover interest in the Forex Market.
While closing of the open position the next day, the rates that are considered is the rate at the opening of the same position the next day. Thus the difference in pricing is also considered. This can be an added advantage for the trader, if considered carefully.
A seasoned forex trader, would utilize the free forex signals provided by forex brokers or online trading companies, be able to predict the change expected to some extent and exploit the rollover interest.
Based on international banking laws, all overnight open currency positions will be closed at 5.00p.m EST each day. Any trade that is opened before 5.00 p.m. and held after 5.00p.m. is considered as overnight trade.
Since all trading is done in currency pairs, and the trade is based on the currency rate of one country relative to another countries currency, the trade could be either a buy or a sell. The forex trader makes a profit or loss based on the open and closed position of the trade.
In normal circumstances, most of the retail forex brokers automatically roll over trades. The forex market is dynamic in nature thus, the difference in the interest rates can be substantially if utilized in a practical, and pre assessed manner.
The rollover interest gained or lost is added to the trader account two days after the transaction takes place. This is termed as Settlement.
It is important to know that the roll over interest is based on the total value of the trade and not only the margin used in the trade. Every trader needs to know that the roll over interest is not a charge for using leverage.
Another point to note and can be used by forex traders trading in the online forex market, is the knowledge that currency positions closed after Wednesday will be settled only on the following Monday, as most banks stay closed on Saturday’s. This is an added interest on the trade.
Using the free forex signals to predict the trend in the forex market and then utilize the rollover interest would be a smart way to trade. But as stated in most literature, every trade is not free of risks hence, the forex trader needs to be vigilant, follow the forex market trends and wisely open currency position with the knowledge on how the currency position may perform the next day to ensure gaining from the rollover interest and settlement policies provided by the forex market.