[Hi, below message is modified from one that I had posted on another thread. So far there has been no response, and I guess the reason could be that thread is too dated. Hence, I am starting a new thread here so hopefully someone can advise. Thanks in advance!]
I hope someone could enlighten me on a question that I have always been curious about: Why 3-day rollover on Wednesday?
I quote below passage from a broker:
[I]When is rollover booked?
5 pm in New York is considered the beginning and end of the forex trading day. Any positions that are open at 5 pm sharp are considered to be held overnight, and are subject to rollover. A position opened at 5:01 pm is not subject to rollover until the next day, while a position opened at 4:59 pm is subject to rollover at 5 pm.
A credit or debit for each position open at 5 pm appears on your account within an hour, and is applied directly to your accounts balance.
Weekends and Holidays:
Most banks across the globe are closed on Saturdays and Sundays, so there is no rollover on these days, but most banks still apply interest for those two days. To account for that, the forex market books 3 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 2 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 banks, and an extra day of rollover is added at 5 pm on July 1 for all US dollar pairs. [/I]
I have actually googled on this rollover issue, and what I have found is they will say the similar thing along the line of [I]“To account for that, the forex market books 3 days of rollover on Wednesdays, which makes a typical Wednesday rollover three times the amount on Tuesday.”[/I]
However, I still don’t understand why there is 3 days of rollover on Wednesday. If forex is a 2-day settlement business (as someone has stated), then:
- Wednesday’s poisition should have the normal 1 day rollover since it will be settled on Friday (provided it is not a holiday).
- Thursday’s position should have 3 days rollover since it will be settled on next Monday, hence it is not “settled” on Friday, Saturday and Sunday (3 days).
- Friday’s position should have 2 days rollover since it will be settled on next Monday, hence it is not “settled” on Saturday and Sunday.
But the 3 days rollover occurs on Wednesday. Why?