BASIC ROLLOVER INTEREST CALCULATION
Spot forex trades are settled in two days and open positions held at the time of rollover are automatically "rolled over" or "swapped" by the respective FCM/Dealer for a new position expiring the following settlement date at 5pm EST rollover. This process is also known as "tomorrow, next day" or simply "tom next."
The two positions that are exchanged during rollover are generally not valued at the same price. The difference in value is based on the difference of overnight bank interest rates between the two quoted currencies. If you are long the currency bearing the higher interest rate then you would generally receive a small credit in your account. Conversely, if you are short the currency bearing the higher interest rate then you would generally experience a small debit to your account. Generally, the nominal debit or credit will be reflected in the price of the new position assigned during rollover or as a separate rollover credit/debit.
Wednesday is used to compensate for Saturday and Sunday interest that is unaccounted for while the markets are closed on those two days. Any open spot positions held at rollover on Wednesday will experience three days worth of credits or debits in the account (referred to as "triple rollover").
*Please note: General rollover interest calculations are below, but the actual interest credited or debited may vary by FCM/Dealer, due to different rollover fees and policies. Also note that the calculation below does not take into account any fee that the FCM may charge for rolling over positions on behalf of the client.
THE EXAMPLE BELOW IS FOR EDUCATIONAL PURPOSES ONLY.
Rollover example: Long 100,000 EUR/USD at rollover, EUR/USD at rollover is trading at 1.1800, EUR short-term interest rate is 2.25% and the USD short-term interest rate is 4.00%, the theoretical rollover calculation would be as follows:
contract notional value x (base currency interest rate - quote currency interest rate) / 365 days per year x current base currency rate = daily rollover interest debit/credit
Therefore: 100,000 x (2.25% - 4.00%) / 365 x 1.1800 = daily rollover interest debit/credit
Further: 100,000 x -1.75% / 365 x 1.1800 = -$5.66 rollover debit to your account
Since you are long a base currency (EUR) bearing a lower interest rate than the quote currency (USD), you pay rollover.
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