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Forex and Rollover Interest
When it comes to the forex market, especially the spot market, all trades that are conducted must be settled within two business days. When there is a rollover involved, this refers to the process of closing any open position for the current value and the opening of that same position on the next day’s value. The price will reflect the difference between the interest rates of the two currencies that are being traded. Based on banking practices, all Forex brokers will roll over any open positions to the following date, which will close at 5 PM EST for a final settlement.
Rollovers will involve the exchange of the position that is being held for a position that will be expiring on the next day. Let’s say a trade is executed on Tuesday. The value date for this trade will then be Thursday. There is an exception to this. If the position is opened on Tuesday and then help overnight, the value date will then become Friday. The only time this differs is when any position is held overnight on a Wednesday. The typical value date would be Saturday, but since there is a weekend involved. The value date will be set for Monday. Any position that is held overnight that will go into the weekend will automatically incur an additional two days of interest.
Should a trade fall on a holiday, additional days of interest will be involved as well. It is possible for traders to earn quite a bit on interest, but it will all depend on the direction of the position as well as the differential of interest rates between the currencies that are being traded. For example, in Great Britain, the interest rates are higher than they are in Japan. If a trader is purchasing GBP, they will earn the interest at 5 PM EST. However, if they are selling the GBP, they will pay interest at the same time.
Any interest or rollover that is earned will be paid to the account after purchasing any currency with a higher interest rate. On the other hand, an account will be charged is the country’s currency being issued has a lower interest rate. Interest rates can be an important part of trading and should be something that all traders are aware of so they can plan on making extra money or having to pay more when a trade is settled.
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There's a lot that to know when it comes to Forex trading which is why WorldForex.org will continue adding articles and new information to this website on a regular basis. Please visit us and come back to our website from time to time for the latest Forex technicals, charts and other information.
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