The Bull

Saturday 15

December, 2018 4:06 AM



Forex question

What is a spot forex rollover?

What is a spot forex rollover? Piers Cracknell, VantageFX

When you trade spot forex you are trading a pair of currencies, you buy a set amount of one currency and sell the equivalent amount of the other currency. This contract requires one currency to be exchanged for the other and delivered in two business days. When people are speculating in the retail spot FX market, they generally do not take physical delivery of the currency and the position is rolled automatically on a daily basis. The financial implication of doing so is referred to as ‘cost of carry’. 

Since all currencies have an interbank interest rate associated with them, the cost will be different for each currency pair. If the interest rate applicable to the currency you bought is higher than the interest rate applicable to the currency you sold, there will be a positive cash-flow implication and the trader will be paid proportionately on the rollover. If the interest rate applicable to the currency you bought is lower than the interest rate applicable to the currency you sold, there will be a negative cash-flow implication and the trader will be charged proportionately on the rollover.

These rollover charges will automatically occur at 5pm New York time. A position opened at 5:01 pm is not subject to rollover until the next day, while a position opened at 4:59 pm is subject to rollover at 5 pm. These charges are applied directly to your account balance.

Example of a spot forex rollover.

You are long the AUD/USD pair.

You will receive interest on the AUD and pay interest on the USD.

If AUD has a higher interest rate than the USD, you will receive a net interest payment but if AUD has a lower interest than the USD, you will pay out a net interest payment.

What happens during the weekends and Holiday?

Most liquidity providers around the world are closed for two days a week (usually Saturdays and Sundays). There is no rollover on these days but since most providers still apply interest for these days they book three days of rollover on Wednesdays, which makes a typical Wednesday rollover three times the amount applied on a Tuesday.

There is no rollover on holidays, but an extra day’s worth of rollover two business days before the holiday.

Piers Cracknell is Head of Sales of VantageFX

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