DEFINITION of Rollover
A rollover is a process of keeping a position open beyond its expiry, speaking about trading.
WHAT IT IS IN ESSENCE.
For Forex, this process is the action taking place at end of the day. Where all open positions with value date equal SPOT, will be rolled over to the next business day.
In FX trading the trader doesn’t want to actually buy the traded currencies but to continue to trade until the position is closed.
Many trades have an expiry date attached to them. And position will automatically close and any profits or losses will be realized.
In some conditions, the trade can be rolled over and profits or losses will be realized and the trade gets a new expiry.
A rollover often comes with an associated charge.
Trading platforms offer it but the process involves a rollover interest fee. Also, calculated according to the difference between the interest rates of the traded currencies.
If the interest rate on the trader’s long position is higher than the rate on the short position, the trader receives the interest.
But, say, for example, the interest rate on the trader’s short position is higher. Higher then the rate on the long position, then the trader pays the interest.
For weekends and holidays, the rollover is multiplied by the number of days of the process.
HOW TO USE
Rollover for a specific currency pairing can be either a positive or negative value. Ultimately, the trader is responsible for the realization of any gains or losses as a result of the roll.
For instance, if a trader is holding a long position in the EUR/USD at 5 p.m. EST. It will be the difference in the value received for holding euros and the value paid for being short U.S. dollars.
If revenue from interest through long euros is greater than the cost withholding the offsetting US dollar short position, then the rollover is positive. Hence, the trader realizes a net gain.
If the interest costs are greater for holding the USD shorts, then rollover is negative, and the trader assumes the loss.