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What is Rollover in Forex Trading?

Quick Answer: Rollover (swap) is the interest paid or earned for holding a position overnight, based on the interest rate differential between the two currencies. You earn if buying higher-rate currency, pay if buying lower-rate currency. Rollover happens at 5 PM EST.

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What is Rollover in Forex Trading?

Rollover (also called swap) is the interest paid or earned for holding a forex position overnight. Because forex trades involve borrowing one currency to buy another, you either pay or receive interest based on the interest rate differential between the two currencies. This daily adjustment happens automatically at 5 PM EST when positions roll over to the next trading day.

How Rollover Works

The mechanics are tied to central bank interest rates:

  • Positive Rollover (Credit): You earn interest when the currency you're buying has a higher interest rate than the one you're selling
  • Negative Rollover (Debit): You pay interest when the currency you're buying has a lower interest rate
  • Triple Rollover: Wednesday rollovers count for three days to account for the weekend

Practical Example

You buy AUD/JPY (long Australian dollar, short Japanese yen). Australia's interest rate is 4.35%, Japan's is -0.10%. The interest rate differential is approximately +4.45% annually in your favor. Your broker credits your account a small amount each day for holding this position overnight. On a standard lot ($100,000), you might earn $10-15 per day in rollover. Hold for a year and that's $3,650-5,475 in interest - this is the basis of carry trade strategies.

Rollover Considerations for Traders

Rollover impacts different trading styles differently:

  • Day Traders: Close all positions before 5 PM EST to avoid rollover entirely
  • Swing Traders: Must account for daily rollover costs/credits in profit calculations
  • Carry Traders: Specifically target positive rollover pairs for long-term holds

Check your broker's rollover rates before holding positions overnight. Some brokers charge wide spreads on rollover, turning a theoretical credit into an actual debit. During periods of central bank policy divergence (like Fed hikes vs ECB holds), rollover rates can significantly impact your profitability, especially on leveraged positions where the rollover applies to the full notional value.

Related Terms

Carry TradeHawkishDovish

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