Forex Rollover: Your Guide to Overnight Interest

What is Rollover?

Imagine holding a foreign currency position past bedtime. Rollover is the interest adjustment applied for keeping this position open, essentially an overnight “rent” charged (or earned) depending on the interest rates of the two currencies involved.

How Does it Work?

• Each currency carries its own overnight interest rate. When you hold a pair, you’re dealing with two rates.
• If the “long” currency has a higher rate than the “short” one, you earn interest (positive rollover). The opposite scenario leads to a debit (negative rollover).
• Consider EUR/USD: with higher USD rates, holding a long EUR trade incurs a nightly cost.

Strategies for Savvy Traders:

• Carry Trades: Capitalize on positive roll rates by buying high-yield currencies and shorting low-yield ones. Think AUD/JPY, where Aussie’s higher rate earns daily returns.
• Hedging Positions: Offset potential losses in one position by a negatively correlated pair. Example: Long GBP/USD with a short GBP/JPY to mitigate USD exposure while potentially earning rollover.

Essential Rollover Knowledge:

• 5pm ET: The magic hour for rollover booking. Positions open before 5pm are subject to that day’s rates, while those opened later escape till the next day.
• Global Time Zones: Remember, rollover times vary for different regions. For example, it’s 22:00 GMT in London and 9:00 AM the next day in Sydney.
• Weekend Adjustment: Banks are closed on weekends, so no rollover occurs. Instead, three days’ worth are booked on Wednesdays, potentially impacting your positions with extra cost or gain.
• Holiday Rollover: Major holidays in either currency trigger an extra day’s worth of rollover usually two business days before.

Tips for Mastering Rollover:

1. Close Before 5pm ET: If facing steep negative rollover, consider closing your positions before the deadline to avoid the overnight drain.
2. Embrace Positive Rollover: For trades you plan to hold, positive rollover can add passive income. Optimize your portfolio with high-yield pairs to benefit from this overnight bonus.
3. Stay Informed: Central bank decisions and economic events can drastically shift interest rates and rollover rates. Keep an eye on the JFT calendar and analysis for timely updates.

With JFT as your guide, navigate the exciting world of forex with confidence. Master rollover, unlock its potential, and trade smarter with every open position. Let’s embark on this journey together!