What’s the forex rollover?
It sounds boring.
But it’s essential to understand.
The forex rollover is the interest you earn or pay at the end of the day.
Let us explain…
Forex rollover basics
Forex rollover is also called the ‘swap rate’. The swap rate is a type of interest rate.
Forex rollover is only relevant for traders who intend to hold their positions overnight, or for a consecutive number of days. Since forex is an international product, if you hold an open position at the end of the day, you receive or pay the ‘swap rate’ on the currency pair.
The forex rollover differs between currency pairs.
Every currency will have its own swap rate. For example, the US dollar swap rate is decided by the US Federal Reserve, while the European Central Bank chooses the ‘swap rate’ for the euro. That means, since forex is traded in pairs, there’s two different swap rates to consider.
If you own a long position in a base currency (i.e. EUR), and the swap rate is higher than that of the quote currency (i.e. USD), you will receive a credit to your account at the end of the day. Remember, traders buy currency pairs when they think the base currency will rise against the quote currency (i.e. EUR/USD). In this case, if the quote currency has a higher swap rate than the base currency, a debit will be taken from your account at the end of the day.
But it gets a bit more complicated, if you’re trading short. The above debits (you pay the broker interest) and credits (the broker pays you interest) are inversed.
In this case, if you own a short position in a base currency (i.e. EUR) at the end of the day, and the swap rate is higher than the quote currency (i.e. USD), your broker will debit (pay interest to) your account. If the quote currency has a higher swap rate than the base currency, you will receive a credit (earn interest) to your account at the end of the day.
Here’s a sample of rollovers charges for selected currency pairs:
Looking at the table above, if you were long the AUD/CAD at the end of the day, your broker would deduct 97 cents from your account. Every broker has different end–of–day trading times and swap rates, adjusted for their premium on the real swap rate. You need to check with your broker every day for the currency swap rate, together with the end–of–day closing times.
How to use MT4 to find the rollover rates
You can check your MT4 trading terminal for the updated rollover rates each day. Here are the steps to check, when you open your MT4 trading terminal:
- Click on ‘Market Watch’ (right–click in the panel for this).
- Click on ‘Symbols’.
- Search for the currency pair that you want to trade.
- Click on ‘Properties’. That will show you the information about the currency pair, including the swap rates for long and short.
You might be using another forex trading terminal, such as MT5 or cTrader. If so, you will use slightly different steps to find out the rollover rates:
Your ‘Start With Forex’ takeaway
Position traders who hold overnight or over multiple days need to pay attention to forex rollover. It allows you to earn money while you sleep. That is, if you’re betting on the currency with the higher swap rate!
Most stock traders don’t have to think about overnight swap rates, unless they’re trading CFDs. It’s crucial that you’re aware of forex rollover since it could be another cost. And if you intend to hold your forex position for several days or weeks, the cost of forex rollover can add up.
Remember, how much you’re debited or credited shows up in your trading account at the end of every day. This amount is known as swap. If you have held a position overnight and saw money added to/subtracted from your account, now you know why. If you also intend to hold overnight positions and are curious to see how much you will be paying/receiving, check out your broker’s website or trading terminal.
Forex rollover is a basic, however important, lesson you should know. I hope you saw some value in it. But there’s still so much for you to learn. In the next short lesson, we’ll cover some other forex basics. If you’re ready to learn how to pick the best forex broker, click here.
To your trading success,
Start With Forex
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