What is rollover in forex
One of the key terms in the Forex market is rollover. To minimize the missing knowledge and also improve the understanding of technical subtleties for the trader, let us analyze what a rollover is in forex and what features it has. Rollover is the transfer of an open position to the next business day. The transfer is implemented in this way: the broker closes this position today at the end of the day and opens it tomorrow at the beginning.
In general, the concept of “rollover” is not only in trading, but also in the basic economic theory – in economics it means the extension or transfer of credit. In principle, the use of this word in Forex is similar, since it implies the transfer of the transaction to a new date.
Types of rollovers
In the foreign exchange market there are 2 types of rollovers. Open – involves the execution of applications for the division of actual profits in compliance with all points of the offer. Closed – profit is not distributed. There is only the execution of operations for collecting and updating information on the PAMM-accounts of this broker.
It is necessary to clarify that the concept of rollover will differ depending on the broker, each sets the rules for the transfer of positions. Most use the open option, which involves automatic operation at the selected time, but not more than 1 time per day. At the same time, managing traders receive their commissions for work, and investors receive profit in the form of interest.
Any position on Forex left overnight implies recalculation of the interest rate, because it is postponed to another value date. The next day rollover spot positions take place at 5:00 pm (New York time) daily on trading days.
What does rollover consist of
Transferring the tomorrow / next position contains two components:
a) swap points for tomorrow;
b) sponsorship of unrealized profits and losses.
The accumulated debit or rollover credit will be added or subtracted from the previous price at which the position was opened.
These items are calculated on the basis of the swap price (tom / next) from the top-level bank with a 0.45% (+ or -) markup on the current overnight market interest rates, with the percentage indicated in the section on unrealized gains and losses added.
Unrealized profit / loss
For all unrealized gains and losses on spot positions carried forward to tomorrow, the interest of the debit or credit must be paid. Interest is added to the swap points with the subsequent calculation of the debit and rollover credit.
Calculation of unrealized profits and losses is made by finding the difference between the initial trading price of the position (which, it is possible, could have already been adjusted earlier on rollovers) and the price at the end of the day at 17:00 (in New York).
Since PAMM accounts have already become commonplace in the Forex market, there are also rollovers on them, but they differ from those on the regular market. On PAMM accounts, the transfer of positions is usually implemented according to the following principles:
- results logging and position transfer are implemented hourly;
- data is recorded in the statistics;
- profits and losses are distributed among the bidders;
- account manager is charged a fee.
The main difference is to record the results and provide an opportunity for traders to replenish an account or withdraw funds.