Typically, a currency pair trade is settled within two business days. All Forex trading is done in currency pairs. When a currency position rollovers, the difference between the amount of interest being earned on the base currency against the amount of interest being paid on the quote currency is the rollover interest. If the base currency short term interest rate is higher, the rollover interest is a credit. However, if the quote currency has the higher short term interest rate, the rollover interest is a debit.
The timing on rollover interest is very precise. Any currency positions that remain open as of 5 p. EST are deemed to be held overnight and so rollover interest applies. Since spot trading takes two days to settle, trades held open on Wednesdays may book three days of rollover.
Brokers do have their own rollover interest policies. The first important note to understand is that rollover interest is based on the total value of the trade, not just the margin. You need three pieces of information in order to calculate rollover interest:. This is the total amount of the trade. The next step is to find the short term interest rates for each currency.
For purposes of this example, pretend the short term rate on the euro is one percent and for the U. To calculate the daily rollover interest rate, take the difference between the two interest rates. Then, multiply the interest differential by the total value of the trade: Now, multiply the price quote by the number of days in the year: The final step is to divide the first number by the second number: Each month we help countless people save money by comparing the rates on offer from the top currency brokers on the market.More...