Rollover
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Thread: Rollover

  1. #1
    Join Date
    Nov 2006
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    11

    Default Rollover

    I am bothered about the rollover concept, if I hold on to a position for a week or further, how much will I lose because interest payment. For EUR/USD pair if I remain long for couple of days, it seems I will lose out every day due to rollover.

  2. #2
    Join Date
    Dec 2006
    Location
    Wichita Falls, TX
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    That's a feature of forex trading.

    You earn interest on the currency you are long, and you pay it on the currency you are short. If the former has a higher interest rate than the latter, you make money. If it's lower, you lose it.

    Most brokers/dealers will only charge roll-over or carry interest on positions held "overnight" (beyond the NY close). That means day traders can generally avoid the whole issue. (Oanda calculates and pays/charges continuous interest, but they are the only one I'm currently aware of).

    If you are a longer-term trader, then certainly you need to take the carry into account. If the interest rate spread is small, though, then it won't matter too much.

  3. #3
    Join Date
    Apr 2007
    Posts
    11
    Per chance could someone elaborate on this? Rollover is a concept I'm really having trouble grasping. Could someone explain using a simple example, and expect me to ask dumb questions until I understand? Because that would be just fantastic

    I'll get started by telling you guys what I do understand about rollover.

    Say I go long on the USD/JPY pair. I'm buying the USD and selling the JPY, right? So which currency am I actually borrowing? Then, the interest rate of the currency I'm borrowing is put up against the interest rate of the currency I bought, and I pay the difference, right? So if I buy a micro lot (.10), I pay whatever % of 10,000?

    Sorry, I realize my questions are hard to understand. I'm hoping someone out there will take pity on me and walk me through this so I can finally feel I grasp the concept.

    -d
    Last edited by ddblue; 04-08-2007 at 02:54 AM.

  4. #4
    My understanding is this:

    I would appreciate someone verifying the accuracy of my infantile understanding of this, as well as my calculations!!

    A grossly exaggerated example, granted - for demonstration purposes only!!
    Assumptions:
    - US Interest rate= 4%
    - EU Interest rate= 12%
    - EUR/USD current rate = 1.20(forget the spread for now!)
    - Trading mini lots, leverage 100:1
    At end of business day, you are long 1 mini lot EUR/USD

    Rollover calculation:
    1. €10,000.00 x 12%= €1,200.00(p.a) devided by 365= €3.2877 per day
    x 1.2= $3.9452
    This is the interest earned on your long position.
    2. €10,000.00 x 1.2= $12,000.00 x 4% = $480.00(p.a) devided by 365
    =$1.3151
    This is the interest you paid on your long position

    3. Net interest= $3.9452 - $1.3151= $2.6301
    This represents an annual interest rate on your investment of almost 800%
    -> your 1 mini lot devided by 100 (leverage) x 1.20 = $120
    -> $2.6301 devided by $120 x 100 = 2.19175% per day!!
    -> multiplied by 365 = 799.98875% per annum


    Happy pippin'
    FP
    Last edited by flyinpipper; 04-08-2007 at 04:52 AM.

  5. #5
    Join Date
    Apr 2007
    Posts
    2

    Default Rollover

    Thanks for discussing. I understand the concept or the process of rollover but why on Wednesday or Thursday they charge more. for everymonth there is a rollover history (schedule) to follow.

  6. #6
    Join Date
    Dec 2006
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    Wichita Falls, TX
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    Quote Originally Posted by fxfrank View Post
    Thanks for discussing. I understand the concept or the process of rollover but why on Wednesday or Thursday they charge more. for everymonth there is a rollover history (schedule) to follow.
    Spot forex is actually a 2-day settlement. That's business days. That means any position held on Thursday or Friday (Wednesday too if Friday is a holiday) includes weekend interest as well in the rollover.

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