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What is rollover?

In the Forex, not all positions need to be closed at the end of the day. Some traders choose to leave positions open for days, weeks, or even months at a time to give a currency pair time to record more movements. When this bringing over of a pair from one day to the next happens, rollover occurs.

Rollover is a fee charged on each position that is left overnight. The exact amount of the fee depends entirely on the currency pair being traded since it relies on the difference between each currency’s interest rate.

If the position you are buying has a greater interest rate than the one you are selling, then the rollover actually earns you money every time it is applied. On the other hand, if the interest on the one being sold is greater, then you will end up having to pay the fee for each day you keep it open.

Rollover is the basis for a strategy called the carry trade, which relies on finding two currencies which have a large difference between their interest rates. This way, not only can you profit from the movements of a currency pair, you will also passively earn everyday.
 

Created by : GeorgieOh
Published : 16 Oct 2014

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