Rollover

What Is Rollover in Forex?

Rollover (also called a swap) is the process by which a forex broker extends the settlement date of an open position to the next trading day by simultaneously closing the current-day contract and opening a new one for the following day. Because forex trades technically settle in two business days (T+2), any position held past the daily cut-off time (typically 5:00 PM Eastern Time) must be "rolled over" to avoid physical delivery of the currencies.

The rollover process involves an interest rate adjustment — traders either earn or pay a small amount based on the interest rate differential between the two currencies in their position. This mechanism reflects the fundamental principle that holding a currency is equivalent to holding a deposit in that currency's interest rate environment.

How Rollover Works

When a position rolls over, the broker calculates the swap rate based on the overnight interest rates of both currencies:

• Positive rollover (swap credit): The trader earns interest when they are long the higher-yielding currency and short the lower-yielding currency
• Negative rollover (swap debit): The trader pays interest when they are long the lower-yielding currency and short the higher-yielding currency

The formula for daily rollover is approximately:

Rollover = (Interest Rate of Long Currency - Interest Rate of Short Currency) / 365 x Position Size

For example, if a trader is long AUD/JPY with Australian rates at 4.35% and Japanese rates at 0.10%, they earn approximately (4.35% - 0.10%) / 365 = 0.01164% of their position size per day.

Triple Wednesday (or Triple Rollover)

A crucial concept in rollover is triple swap day, which occurs on Wednesday in most markets. Because forex settles T+2, a position held through Wednesday night settles on Friday — but the next available settlement date is Monday (skipping the weekend). Therefore, Wednesday rollovers carry three days' worth of interest charges or credits. This makes Wednesday particularly significant for carry trade strategies.

Rollover and Trading Strategy

Rollover directly impacts several trading approaches:

• Carry trade strategies explicitly seek to profit from positive rollover by holding high-yield currency pairs for extended periods
• Day traders who close all positions before the daily cut-off avoid rollover charges entirely
• Swing traders must factor rollover costs or credits into their position profitability calculations
• Negative rollover on popular pairs like EUR/USD can accumulate to meaningful costs over weeks of holding

Brokers display swap rates in their platform specifications, typically quoted in points or pips per lot. These rates are updated regularly based on changes in central bank policy rates and interbank lending conditions.

Key Points

• Rollover occurs at the daily cut-off (5 PM ET) for all positions held overnight
• The direction of the swap (credit or debit) depends on the interest rate differential
• Wednesday carries triple rollover to account for the weekend settlement gap
• Swap rates vary by broker and are influenced by central bank interest rate decisions
• Islamic (swap-free) accounts are available for traders whose beliefs prohibit interest