Rollovers in Currency Markets
Rollovers are unique to the currency markets. Rollovers are transactions where an open position from one settlement date is rolled over to the next settlement date. Rollovers represent the intersection of interest rate markets and forex markets.
Rollover rates depend on the difference between the interest rates of the two currencies in the pair that you are trading. Only remember that what you are trading is in fact the good old cash. Dont forget currency is money after all.
When you are long on a currency, it is like having a deposit in a bank account. If you are short, its like take a loan from the bank. Just as you would expect to earn interest on a bank deposit and pay interest on a loan, you should expect an interest gain or an interest expense on holding a currency position over time.
Think of the open currency position as one currency with the positive balance (the currency you are long) and one with negative balance (the currency you are short). The difference between the interest rates between the two currencies is called the interest rate differential.
You should look for the base or benchmark lending rates in each country. The interest rates of two different countries apply because your accounts are in two different currencies. You can find the benchmark lending interest rates of different countries from any good financial website like the Wall Street Journal, the Financial Times, CNBC etc.
If you hold an open position past the settlement date or value date, rollovers are usually carried out by your forex broker. The smaller the impact of the rollovers, the narrower the interest rate differential! The larger the impact from rollovers, the larger the interest rate differential!
Some online forex brokers apply the rollover rates by adjusting the average rate of your open position. Other forex brokers apply the rollover rates by applying the rollover credit or debit directly to your margin balance. Rollovers are applied to your open currency position by two offsetting trades that result in the same open position.
Rollovers are not applied if you dont carry a position over the change in the value date. Rollovers do not apply for day traders who usually close their positions at the end of each trading day. Rollovers are applied to open position after 5.00 PM EST change in value date. Rollovers only apply to your over night open position carried over to the next day.
If you are long the currency with the higher interest rate and short the currency with the lower interest rate, rollover can earn you interest income. If you are short the currency with the higher interest rate and long the currency with the low interest rates, rollovers will cost you money. - 23210
Rollover rates depend on the difference between the interest rates of the two currencies in the pair that you are trading. Only remember that what you are trading is in fact the good old cash. Dont forget currency is money after all.
When you are long on a currency, it is like having a deposit in a bank account. If you are short, its like take a loan from the bank. Just as you would expect to earn interest on a bank deposit and pay interest on a loan, you should expect an interest gain or an interest expense on holding a currency position over time.
Think of the open currency position as one currency with the positive balance (the currency you are long) and one with negative balance (the currency you are short). The difference between the interest rates between the two currencies is called the interest rate differential.
You should look for the base or benchmark lending rates in each country. The interest rates of two different countries apply because your accounts are in two different currencies. You can find the benchmark lending interest rates of different countries from any good financial website like the Wall Street Journal, the Financial Times, CNBC etc.
If you hold an open position past the settlement date or value date, rollovers are usually carried out by your forex broker. The smaller the impact of the rollovers, the narrower the interest rate differential! The larger the impact from rollovers, the larger the interest rate differential!
Some online forex brokers apply the rollover rates by adjusting the average rate of your open position. Other forex brokers apply the rollover rates by applying the rollover credit or debit directly to your margin balance. Rollovers are applied to your open currency position by two offsetting trades that result in the same open position.
Rollovers are not applied if you dont carry a position over the change in the value date. Rollovers do not apply for day traders who usually close their positions at the end of each trading day. Rollovers are applied to open position after 5.00 PM EST change in value date. Rollovers only apply to your over night open position carried over to the next day.
If you are long the currency with the higher interest rate and short the currency with the lower interest rate, rollover can earn you interest income. If you are short the currency with the higher interest rate and long the currency with the low interest rates, rollovers will cost you money. - 23210
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is insterested in day trading stocks and currencies. Develop your own Forex Trading System. Learn Forex Trading !
posted by X - Men @ 8:21 AM
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