Rollover interest is paid or debited to traders who have open currency positions at 5 p.m. EST each day the trade is open. Trades opened before 5 p.m. EST and held until after this time, are considered to be held overnight and, thus, are subject to interest credit or debits depending on the position the trader has open.
Whether a credit or debit is applied to the trader's account is determined by which country's currency the trader bought or sold relative to another country's currency. All currencies trade in pairs, meaning one country's currency is always relative to another country's currency. An example of this is the EUR/USD. Therefore, the amount of interest received by the trader, for holding the EUR/USD pair overnight, will be determined by the difference in interest rates prevailing in each location when the rollover occurs.
In most cases, retail forex brokers automatically roll over trades.
Whether a credit or debit is applied to the trader's account is determined by which country's currency the trader bought or sold relative to another country's currency. All currencies trade in pairs, meaning one country's currency is always relative to another country's currency. An example of this is the EUR/USD. Therefore, the amount of interest received by the trader, for holding the EUR/USD pair overnight, will be determined by the difference in interest rates prevailing in each location when the rollover occurs.
In most cases, retail forex brokers automatically roll over trades.
Retail brokers do this to prevent traders, most of whom are speculators, from having to deliver actual currency to the party on the other side of the trade. Settlement, which is the day the trader would have to deliver actual currency to the person on the opposing side of the trade, is two days after the transaction took place. With brokers rolling over positions, trades can be left open without actual delivery of the full value of the currency position taking place. If rollover did not occur, the trader would be required to deliver the face value of the currency. This is because the forex market is where we trade contracts in which one currency is exchanged for another; this is to be delivered in two business days.
- Rollover interest is paid or debited based on the total value of the trade, and not simply the margin used for the trade. For example, if a trader is holding one lot of EUR/USD, he or she will be credited or debited interest on $100,000 (the full value of one lot), and not only the margin put up for the trade.
- It is also important to note that rollover is not a charge for using leverage. It is a common misconception that if rollover is debited from a trader this is the cost of the leverage that a broker provided for this trader. This is not the case. The debit or credit is based on the difference between the interest rates of the countries involved in the currency pair the trader is holding.
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