Market rollover, also known as forex rollover or rollover interest, is the process of extending the settlement date of an open forex position to the next trading day.
This rollover typically occurs at 5 p.m. New York (EST) time each trading day.
In simpler terms, when you hold a forex position overnight, the trade is "rolled over" because the forex market operates 24/7, but currency contracts typically settle in two business days.
How it Works:
Interest Rate Differentials: Each currency pair consists of two currencies, each with its own interest rate set by the respective central bank. The difference in interest rates between the two currencies affects the rollover.
Positive Rollover: If you buy a currency with a higher interest rate and sell a currency with a lower interest rate, you could earn interest (positive rollover).
Negative Rollover: Conversely, if you buy a currency with a lower interest rate and sell a currency with a higher interest rate, you may have to pay interest (negative rollover).
Rollover Fee: When you leave a position open overnight, the broker adjusts your account to reflect the interest rate difference between the two currencies in your position. This is known as the rollover fee or credit.
Example:
Imagine you buy the EUR/USD currency pair. If the interest rate in the Eurozone is higher than that in the U.S., you could earn a small amount of interest each night, which will be added to your account balance. However, if the U.S. dollar has a higher interest rate, you may incur a small fee for holding the position overnight.
Swap Fees in Forex
Swap fees, also known as rollover fees, are the charges or credits applied when holding a position overnight. They depend on the interest rate differential between the two currencies in a pair. If you're buying a currency with a higher interest rate, you may earn a credit; if buying a lower-rate currency, you may pay a fee.
Swap rates are applied daily at 5 p.m. New York time, with Wednesday swaps being three times higher due to the weekend rollover.