In our last lesson we continued our free forex course by introducing the concept of rollover. In today's lesson we are going to continue our discussion on rollover with a look at how we know when we will be paying or receiving interest for holding positions overnight, and how much that will be.

Another nice feature of the platform we are using here is that it is very transparent in the way that rollover is done. As this is one of the more complicated things about trading forex, some firms will take advantage of trader's lack of understanding, and charge them more than they should when the trader is long the currency with the lower interest rate and pay them less than they should when the trader is long the currency with the higher interest rate.

To see what I am talking about lets login to our free real time demo accounts. If you have not done so already I encourage you to click the link above this video if you are watching onInformedTrades.com, or to the right of this video if you are watching on YouTube, and register for a free demo so you can follow along as well.

Once you are logged into the platform change the dealing rates window from advanced to simple view by clicking the simple dealing rates tab in the upper right hand corner of the window. Once you do this scroll over to the right and you will see two columns which say Roll S and Roll B. Roll S stands for the Roll amount you either pay or receive if you sell to enter the trade, and Roll B stands for the Roll amount you either pay or receive if you buy to enter the trade.

If the number beside the currency pair and under the appropriate roll column has a positive number, then this is the amount in US Dollars that will be credited to your account, per contract, for any position held past 5pm NY time. If the number is negative this this is the amount that will be debited from your account, per contract, for any position held past 5pm NY time.

Remember if you open and close a position before 5pm NY time then the position does not need to be rolled over, so your account will not be debited or credited.

As a quick example lets say I want to know the amount of interest that I will either pay or receive if I buy 2 contracts of GBP/JPY, and hold that position past 5pm NY time. All I would do here is scroll down to GBP/JPY and then over to the ROLL B column of the platform where I see that as of this lesson I would earn $50 per contract. Since in this particular example I am trading 2 contracts I would earn $100 for holding that position past 5pm NY Time.

Once this trade is opened and held past 5pm NY time the interest credit will show up in the "Roll" column of the platform.

One last thing that it is important to understand about the logistics of rollover is that trades held past 5pm NY Time on Wednesday take into account the weekend interest when the market is closed, so the rollover amounts are going to be triple on that day. Also if there is a banking holiday in one of the countries whose currency you are trading, then this will affect the role amounts as well.

The important thing to understand however is that all you need to do to know how much you will either pay or receive for holding a position past 5pm NY time is look in the Roll S and Roll B columns of the platform.

As you can probably tell from this lesson, because interest rates cause currency traders to either earn or pay money for holding positions, they have a dramatic affect on the value of currencies, something which we will talk more about in our next module. For those of you who have heard of the carry trade, this comes from the concept we have learned about here today, where traders buy currencies with high interest rates and sell currencies with low interest rates to earn the interest rate differential or carry.

For your homework assignment tonight I encourage you to place a few trades in different currency pairs, and hold them past 5pm NY time so you can see how the rolls work. As you do this think about the power of leverage and what you could potentially do using some of the leverage available to you to try and bolster the returns from the rolls if you are long the currency pair with the higher interest rate.

Thats our lesson for today. In tomorrow's lesson we will have a look at the free real time charts that are available to us on the platform and some of the neat features there, so we hope to see you in that lesson.

As always if you have any questions or comments please feel free to leave them in the comments section below, and good luck with your trading!

Dave,
It's Thursday about 9:30 PDT, and several (but not all) of the currencies show a "Roll B" and "Roll S" of 0.00. I assume this is because of the weekend but can you clarify the Wednesday triple interest and then what happens on Thurs/Fri? Thanks,

rocketman7

Hey Rocketman7,

Good catch man you are really paying attention to the platform which is good to see.

There are is always normally going to be 7 days worth of interest paid or received in any week. Normally it goes:

Monday 1 Days Worth
Tuesday 1 Days Worth
Wednesday 3 Days Worth
Thursday 1 Days Worth
Friday 1 Days Worth

The exception to the above is when there is a holiday and the banks are closed. In these cases the rollover schedule will be modified based on when trades settle in the country that is having a banking holiday.

To be upfront its pretty difficult for even me to keep up with how the roles change when there is a holiday so I use the below schedule which is updated every month from Dailyfx.com:

http://www.dailyfx.com/story/currenc...lover.2008.xls

When they post the schedule for may it can be found in the lower right hand corner of the homepage of Dailyfx.com which is by the way a great site for free FX commentary.

Best Regards,
Dave

Hello David,

So if you hold from Tuesday to Wednesday, you get paid 3 days worth of interest?

Or is it if you hold from Wednesday to Thursday you get 3 days worth of interest?

i.e. If interest paid is $50, you will get paid $150.

Is this true? Why is Wednesday interest paid more?

Thanks in advance.

Sincerely,
Bill

Hey Bill,

If you hold a position past 5pm NY time on Wed. then you are paid triple unless there is a holiday in one of the countries involved in the currency pair, in which that number may be different.

The reason why it is triple on Wed is because positions held past 5pm NY time Settle on Monday due to the weekend so you are paid the normal 1 days worth of interest plus two extra days to take into account the weekend.

Hope that helps. Let me know if there are any other questions.

Best Regards,
Dave

Hi,

I tried to look for the roll over on the dealing rated window. (No where to be found)
I tried to look for the roll over in the open positions window. (No where to be found)

Any help on that...

Also, would you consider making money on the roll overs or more on the pip movement?

Thanks
You are helping a lot

Hi ric,

Glad to hear from you.

The rollover rate on Metatrader is listed in the Trade and Account tabs at the bottom under the column which says "swap".

Best Regards,
Dave

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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.