What is rollover and what does it mean in trading?
What is rollover?
Rollover, also known as 'swap,' is the interest you pay or receive when holding a position overnight. This fundamental aspect of Forex trading plays a key role in managing your trades effectively, especially when holding positions for an extended period.
Put simply, if the interest rate on the currency you bought is higher than the interest rate of the currency you sold, you will get paid for the overnight position. If the interest rate on the currency you bought is lower than the interest rate on the currency you sold, then you will pay rollover according to the swap table.
Here’s a quick example...
For instance, if you buy a lot of the GBP/USD currency pair at an exchange rate of 1.30, you need 100,000 GBP to receive 130,000 USD. The rollover interest is determined based on the current interest rates in the respective countries - the Bank of England for GBP and the Federal Reserve for USD. Understanding this calculation is key to managing your trading cost.
What you should know?
While the above example simplifies the concept, several factors influence rollover for long-term trades. These include fluctuating interest rates, broker-specific charges, and daily recalculations of interest, making it essential for traders to stay informed and adapt their strategies accordingly. The Skilling platform automatically calculates the fees for you and updates your account every evening at around 11 pm CET!
Please click here to see all of our rollovers/swap fees.
A rollover is a purely technical procedure that ensures that the Contracts for Differences (CFDs) that you can trade on the Skilling platforms always accurately reflect market conditions.
The last day you can trade a futures contract is that day's expiration date. A futures trader has three alternatives before expiration:
- Settling the position or closing it
When a trader transfers their position from the front month contract to a contract further out into the future, this is known as a rollover. By keeping an eye on the volume of both the expiring contract and the contract for the next month, traders may gauge when they should switch to the new contract.
When volume in the contract reaches a particular threshold, a trader who intends to roll their positions may decide to shift to the following month's contract.
How come rollover sizes vary?
Price variations for futures contracts for a particular asset are caused by a variety of variables, including interest rates, dividends, and storage costs. These discrepancies are typically moderate, although occasionally particular commodities markets may see significant differences.
What is a rollover in Forex trading?
The interest gained or paid for holding a currency position overnight is known as a rollover in Forex trading. Depending on how they see it, traders have the potential to make a profit or a loss. The example below demonstrates how traders profit from a rollover.
When Do FX rollovers go into effect?
When a Forex position undergoes a rollover, it is rolled over at the end of the trading day without being settled. The majority of Forex trades continue each day until they expire or settle. Depending on the rollover, either spot-next or tom-next transactions are used.
Since the trader maintained the position beyond 5:00 p.m. EST on Monday and closed it at 5:03 p.m. EST on the same day, the trade will still be regarded as an overnight position and be subject to rollover interest.
Not investment advice. Past performance does not guarantee or predict future performance.
Do not stop learning about the financial markets
We’ve got a whole host of resources that are ready and waiting to educate newcomers to trading CFDs online, including:
- CFD trading account types
- Choose the trading account that suits your trading best
- CFD trading basics
- Learn the core principles of trading the financial markets using CFDs.
- CFD trading psychology
- Discover the five rules of thumb to mentally master the stock markets.
What is Forex trading?Forex trading is the buying and selling of currencies on the foreign exchange market with the aim of making profit.
Forex is the world's most-traded financial market, with transactions worth trillions of dollars taking place every day.
What are the benefits?
- Go long or short
- 24-hour trading
- High liquidity
- Constant opportunities
- Trade on leverage
- Wide range of FX pairs
How do I trade Forex?
- Decide how you'd like to trade Forex
- Learn how the Forex market works
- Open a Skilling CFD trading account
- Build a trading plan
- Choose a trading platform
- Open, monitor and close your first position