FOREX trading involves borrowing one currency to buy another whereby the borrowed currency is charged debit interest and the purchased currency is paid interest. Rollover interest is the net effect of the money borrowed by an investor to purchase another currency and such interest is paid on the borrowed currency and earned on the purchased currency. The greater the interest rate differential between the currency pair, the greater the interest rate payment/fee will be. To calculate this interest, you should get the short-term interest rates on both currencies, the existing exchange rate of the currency pair and the number of the currency pair purchased.
Industry practice is if a trade is executed on Tuesday, then Thursday would be considered the value date. An exception occurs if a position is opened and held overnight on Wednesday. The normal value date for Wednesday would be Saturday, but because banks are closed on Saturday the value date is actually the following Monday. Positions that are held overnight on Wednesdays will earn or incur an extra two days of interest. Additionally, positions with a value date that fall on a holiday also incur or earn additional interest.
RolexForex automatically rolls over all open positions to the next trading day at 4:00 p.m. CST (Chicago time). To avoid rollover interest debits or credits on your positions, simply make sure your position is closed prior to 4 p.m. CST (the established end of the market day).
During the rollover period, interest is added to or subtracted from accounts with open positions based on the annual Buy or Sell Premium rates.
Daily Premium Formula
Volume * [ (Premium Rate / 100) / 365 ]
For example:
An investor possesses 15,000 CAD/USD and the present rate is 0.9155, the short term interest rate on the Canadian Dollar (base currency) is 4.50% plus the short term interest on the U.S. Dollar (quoted currency) is 3.75%.
Interest = [{15,000 * (4.50% – 3.75%)} / (365 * 0.9155)] = $33.66
If on the contrary, the short term interest rate on the base currency is lower than the short term interest rate of the borrowed currency, the interest rate would result into a negative number which may reduce the value of the investor’s account.
