Swap and rollover
Rollover (also known as rollover swap) is a procedure of moving open positions from one trading day to another. If a trader extends his position beyond one day, he/she will be dealing with a cost or gain, depending on prevailing interest rates.
Remember that on Forex market the base currency represents how much of the quote currency is needed for you to get one unit of the base currency. The trader borrows money to purchase another currency, and interest is paid on the borrowed currency and earned on the purchased currency. In other words, your position will therefore earn the interest rate of the currency that you have bought, and you will owe the interest rate of the currency that you sold. Most brokers perform the rollover automatically by closing open positions at the end of the day, while simultaneously opening an identical position for the following business day.
Let’s study an example. Every central bank sets interest rate and these rates may significantly differ. For example, imagine that the New Zealand dollar had a higher interest rate than the US dollar. If you were to buy NZD/USD, you would earn the interest difference between the NZD and the USD or so-called swap on your position every day you held that trade overnight. However, if you sold NZD/USD, you would pay the swap for your position every day you held that trade overnight.
You can look up swaps long and short at your broker’s website. The trading terminal automatically calculates and reports all swaps for you.
Other articles in this section
- Demo accounts
- Forex brokers
- MACD (Moving Average Convergence/Divergence)
- Position size, level of risk
- Margin, Leverage, Margin Call, Stop Out
- Transaction, profit, loss. Types of orders
- Economic calendar
- How can I predict where exchange rates will go?
- When is Forex market open?
- Calculating profits
- How to trade?
- What technical tools do I need for trading?
- The advantages of Forex market
- What is Forex?