Rollover Transactions in Forex As A Tool for Extending the Settlement Date  

By | April 22, 2016

Rollover Transactions in Forex

The foreign exchange market attracts many traders and brokers for its rapid pace of transactions. Typically, most transactions can be done as a Forex spot transaction or the alternative Forex forward transaction. Forex spot transactions allow for an almost instantaneous transaction which typically occurs within two business days. The option of rollover transactions in Forex allows traders to extend their settlement date past the typical two business days.

Tomorrow Next Procedure

Delivery of a currency transaction is often two business days after a transaction, but with the rollover transactions in Forex, there is an option of rolling over to an additional business day. In other words, the trade is closed out at the daily close rate and then subsequently re-entered at the new opening rate the next trading day. Many traders and brokers involved in the market refer to rollover transactions in Forex as the ‘tomorrow next procedure’.

Benefits of the Rollover

The popularity of using rollover transactions in Forex has been increasingly growing because many, if not all, currency traders operate in a speculative set of mind. Rather than fearing that the currency will have to be delivered, traders will simply implement the rollover transactions in order to avoid delivery on that same day. Also, many traders use this technique to avoid paying high interest rates depending on how their currency acted on that trading day. It is suggested that those looking to avoid interest rates should enact the rollover transaction in Forex by five in the afternoon (Eastern Standard Time). Yet, for those traders who are doing so on margin with their broker should avoid rollovers which will then lead to them paying interest rates to the broker. In this scenario, it is best to open and close the trade on the same business day.

Our opinion

If you are not doing the trading yourself and have hired a broker then it would be wise to consult with them about the rollover option. Learn more about best brokers of current year in the Forex Trading Bonus review. Market practices nowadays for brokers involved in the foreign exchange market is to automatically assume their customer wants the rollover transactions in Forex to be automatically implemented. Before hiring a broker, it is recommended to review their policies and procedures regarding such market actions. At the end of the day, the most important thing to consider if considering rollover transactions in Forex is that of the potential interest rates to be paid.

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