As the forex market is different than traditional trading, it is crucial to understand how the returns are generated and how interest is calculated. Trades by clients in the forex market are settled within two days and if there are open positions held at the time of a time rollover, they are automatically rolled into the next settlement date by the clearing house. In other words, the open position is swapped for a new one that will expire in the following settlement date. These two positions are usually priced differently, based on the difference in the overnight bank interest rates of the two currencies being traded.

The forex trader who is long the currency bearing the higher interest rate, may receive a small credit in their account overnight. On the other hand, if the forex trader is short the currency bearing the higher interest rate, then they will have their account deducted over night. Whether the account is debited or credited is reflected on the price of the latest position assigned during the time rollover.

The term “Wednesday rollover” is used by some traders to make up for Saturday’s and Sunday’s interest that was not accounted for during those two days that the market is closed. If there is any open spot position held on Wednesday, then the trader will have three days worth of debit and credit in their respective trading accounts.

Here is the formula for calculating rollover interest:

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.

The rollover fee in this instance is calculated while considering the trader’s full position, not their actual traded amount. This makes the effect of a rollover fee magnified. Note that there will be increased rollover fee for trades on Wednesday, as they are settled after 4 days on Monday instead of the standard 2 day settlement. Though a rollover fee is not always a decisive factor, when it does occur, it can significantly affect profits or losses for a forex trader.

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