What Is the Rollover Rate (Forex)?

The rollover rate in forei❀gn exchange trading (forex) is the net interest return on a currency position held overnight by a trader. That is, when trading currencies, an investor borrows one currency to buy another. The interest paid, or earned, for holding the position overnight is called the rollover rate. A currency position that’s open after 5 p.m. ET will be held overnight.

Formula for the Rollover Rate in Forex

 $\begin{aligned} &R_{rollover} = \frac{R_{base~currency} - R_{quote~currency}}{365*E} \\ &\textbf{where:}\\ &\text{R}_{rollover} = \text{The rollover rate}\\ &R_{base~currency} = \text{The interest rate for the base currency}\\ &R_{quote~currency} = \text{The interest rate for the quote currency}\\ &E = \text{The exchange rate}\\ \end{aligned}$​Rrollover​=365∗ERbase currency​−Rquote currency​​where:Rrollover​=The rollover rateRbase currency​=The interest rate for the꧂ base currencyRquote currency​=The interest rate f𒆙or the quote currencyE=The exchange rate​

The first currency of a currency pair is ca💯lled the base currency, and the second currency is called the quote currency. Base and quote currency interest rates ಌare the short-term lending rates among banks in the home country of the currency.

How to the Calculate Rollover Rate

Calculating the rollover rate involves:

1. Subtracting the interest rate of the base currency from the interest rate of the quote currency.
2. Dividing that amount by 365 times the base 澳洲幸运5官方开奖结果体彩网:exchange rate.

Understanding the Rollover Rate

The rollover rate converts net currency interest rates, which are given as a percentage, into a cash return for the position. A rollover interest fee is calculated based on the difference between the two inꦇterest rates of the traded currencies. If the rollover rate is positive, it’s a gain for the investor. If the rollover rate is negative, it’s a cost for the investor.

A rollover means that a position is extended at the end of the trading day without settling. For traders, most positions are rolled over on a daily basis until they are closed out or settled. The majority of these rolls will happen in the tom-next market, which means that the rolls are 🉐due to settle t🦹omorrow and are extended to the following day.

While the daily interest rate premium or cost i💙s small, investors and traders who are looking to hold a position for a long period of time should take into account the interest rate differential. It is possible that over a period of time you could buy currency X and sell it at a lower rate and still make money, assuming the currency you owned was yielding a higher rate than the currency you were short.

Example of How to Use the Rollover Rate

Most forex exchanges display the rollover rate, meaning calculation of the rate is generally not required. But consider the NZDUSD currency pair, where you’re long NZD and short USD. The exchange rate as of Dec. 21, 2023, is 0.63. The NZD overnight interest rate per the country’s reserve bank is 5.50%. The USD 澳洲幸运5官方开奖结果体彩网:federal funds rate is 5.33%.

Therefore, using the formula above, the rollover rate would be: 5.50 - 5.33 = 0.17. 365 x 0.63 = 229.95. 0.17 / 229.95 = 0.00074.

Of course, your broker's rollover rate may differ, as many brokers also include a fee in the rollover rate.

Rollover Rate vs. Swap Rate in Forex

The rollover rate is the cost of holding a currency pair overnight. The 澳洲幸运5官方开奖结果体彩网:swap rate is the rate at which interest in one currency will be exchanged for inte🥂rest in another currency—that is, a swap rate is the interest rate differential between the currency pair traded. The rollover rat𝓀e can also be known as the swap fee.

Limitations of Using Rollover Rate

The difference between an investor’s calculated rollover rate and what a 澳洲幸运5官方开奖结果体彩网:forex exchange charges can vary based on what the exchange considers the short-term interest rat🍷e for the respective curre🔯ncies.

The Bottom Line

The r🍰ollover rate in forex can be a drag on yoꦡur profits or an advantage in your trading. Its important to check the rollover rates on your currency pairs before entering a position.