Forex swaps and rollover interest are closely related in currency trading. A forex swap happens when you keep a currency position open overnight, and the trade is rolled over to the next day. Rollover interest is the interest earned or paid on this overnight position, based on the interest rate difference between the two currencies you are trading. So, forex swaps cause rollover interest to be charged or credited in your trading account.
What is a Forex Swap?
A forex swap is an agreement to exchange currencies on a certain date and reverse the exchange at a later date. In trading, it refers to rolling a position overnight. When you hold a currency trade past the daily cutoff time, your broker swaps the trade to the next day. This swap includes adjusting the trade for the interest rate difference between the two currencies.
Forex swaps let traders keep positions open longer without closing the trade every day.
What is Rollover Interest in Forex?
Rollover interest is the cost or income you get from holding a currency trade overnight. It happens because different countries have different interest rates. If you buy a currency with a higher interest rate than the one you sell, you may earn rollover interest. If it is the other way round, you may pay interest.
This interest is added or deducted automatically from your trading account every day you hold the position overnight.
How Are Forex Swaps and Rollover Interest Connected?
Forex swaps and rollover interest are connected because rollover is the interest part of a forex swap. When a forex position is swapped to the next day, the broker calculates the interest difference between the currencies involved. This difference becomes the rollover interest you earn or pay.
In simple terms, forex swaps include the exchange of the currency position plus the interest adjustments that make up the rollover.
Why is Rollover Interest Important for Forex Traders?
Rollover interest can impact a trader’s profit or loss over time, especially for long-term trades. If you hold a currency with a higher interest rate, you can earn extra income daily. But if the currency has a lower interest rate, holding it overnight can cost you money.
Understanding rollover interest helps traders plan their trades better and avoid unexpected costs.
How to Check Rollover Rates?
Most forex brokers provide daily rollover rates on their trading platforms or websites. These rates show how much interest you will pay or earn for holding each currency pair overnight. It is important to check these rates before placing long-term trades.
Knowing rollover rates helps avoid surprises and plan trading strategies efficiently.
Contact Angel One Support at 7748000080 or 7771000860 for mutual fund investments, demat account opening, or trading queries.
© 2024 by Priya Sahu. All Rights Reserved.
