What is Rollover?
Rollover is the interest paid or earned for holding a position overnight. Each currency has an interest rate associated with it, and because forex is traded in pairs, every trade involves not only two different currencies, but their two different interest rates. If the interest rate on the currency you bought is higher than the interest rate of the currency you sold, then you will earn rollover (positive roll). If the interest rate on the currency you bought is lower than the interest rate on the currency you sold, then you will pay rollover (negative roll). Rollover can add a significant extra cost or profit to your trade.
The FXCM Trading Station automatically calculates and reports all rollover for you.
When you buy the EUR/USD pair, you are buying the euro, and selling the U.S. dollar to pay for it. If the euro interest rate is 4.00%, and the U.S. rate is 2.25%, you are buying the currency with the higher interest rate, and you will earn rollover -- about 1.75% on an annual basis. If you sell the EUR/USD pair, you are selling the currency with the higher interest rate, and you will pay rollover -- about 1.75% on an annual basis, since you are paying the euro interest rate and earning the U.S. interest rate.
One of the most popular forex strategies in the twenty first century has been the "Carry Trade". The "Carry Trade" takes advantage of both the differences in interest rates between countries and the high available leverage of the forex market.
Leverage: Leverage is a double-edged sword and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.
When is rollover booked?
5 p.m. in New York is considered the beginning and end of the forex trading day. Any positions that are open at 5 p.m. sharp are considered to be held overnight, and are subject to rollover. A position opened at 5:01 p.m. is not subject to rollover until the next day, while a position opened at 4:59 p.m. is subject to rollover at 5 p.m.
A credit or debit for each position open at 5 p.m. appears on your account within an hour, and is applied directly to your accounts balance.
Weekends and Holidays
Most liquidity providers (which include global banks, financial institutions, prime brokers and other market makers) across the globe are closed on Saturdays and Sundays, so there is no rollover on these days, but most liquidity providers still apply interest for those two days. To account for that, the forex market books three days of rollover on Wednesdays, which makes a typical Wednesday rollover three times the amount on Tuesday. There is no rollover on holidays, but an extra days worth of rollover two business days before the holiday. Typically, holiday rollover happens if any of the currencies traded has a major holiday. Therefore, Independence Day in the USA, July 4, closes American liquidity providers, and an extra day of rollover is added at 5 p.m. on July 1 for all U.S. dollar pairs.
Where is rollover shown?
FXCM closely tracks and clearly displays rollover rates. Please be advised, interest rates are provided to FXCM by multiple liquidity providers. Every effort is made to display rollover rates one day before they are posted to your account. However, during times of extreme market volatility, rates may change intraday.
Here is an example of the rollover rates in the trading station. You can see today's rollover rates by Opening a Demo Account.
To view today's rates, use the Simple Dealing Rates view. Click on the Simple Dealing Rates tab at the top of the Dealing Rates window. The rollover rates for all the currency pairs are in the Roll S and Roll B columns. Roll S will show you how much rollover you will pay or earn if you sell 1 lot of the currency pair (and have the position open at 5 p.m.). If the number shown is negative, you pay that amount. If the number is positive, you earn that amount. The amount shown is denominated in the currency used by the account, which means that if the trading account is in U.S. dollars, the rollover amount is shown in U.S. dollars.
Do rollover rates and policies vary from broker to broker?
Yes. In addition to our policy of transparency in reporting rollover, due to the average notional trading volume that FXCM generates to the liquidity providers it deals with, FXCM is able to pass to its clients' attractive rollover rates on both sides of every currency pair1.
What is the CFD financing cost?
At FXCM, the financing cost for your CFD trade is referred to as ‘rollover.' This is the interest paid or earned for holding a position past 5 PM EST and is based on the size of the position. For Index CFDs, any dividends issued are included in the rollover amount as well. The formula for rollover is as follows:
[Closing Price of the Index * [(the relevant 3-month LIBOR rate/100) +- FXCM’s Markup]/Number of Days] +- Dividends * Trade Size
Note that the financing markup for long positions on CFDs is typically 3%. For short positions, this markup will be 2% starting November 28th, 2016.
On Fridays, to account for holding a position into the weekend, rollover is 3X times as usual.
To avoid rollover, you can close your position before 5PM EST and the charge would not apply.
1 Liquidity Providers: Liquidity providers include global banks, financial institutions, prime brokers and other market makers.