In the forex (FX) market, rollover is the process of extending the settlement date of an open position. In most currency trades, a trader is required to take delivery of the currency two days after the transaction date. However, by rolling over the position - simultaneously closing the existing position at the daily close rate and re-entering at the new opening rate the next trading day - the trader artificially extends the settlement period by one day.

Often referred to as tomorrow next, rollover is useful in FX because many traders have no intention of taking delivery of the currency they buy - rather, they want to profit from changes in the exchange rates. Since every forex trade is transacted by borrowing one country's currency to buy another, receiving and paying interest is a regular occurrence. At the close of every trading day, a trader who took a long position in a high yielding currency relative to the currency that he or she borrowed will receive an amount of interest in his or her account. Conversely, a trader will need to pay interest if the currency he or she borrowed has a higher interest rate relative to the currency that he or she purchased. Traders who do not want to collect or pay interest should close out of their positions by 5pm ET.

Note that the interest that is received or paid by a currency trader in the course of these forex trades is regarded by the IRS as ordinary interest income or expense. For tax purposes, the currency trader should keep track of interest received or paid, separate from regular trading gains and losses.

To learn more, see A Primer on the Forex Market, Getting Started In Forex and Common Questions About Currency Trading.

  1. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
  2. Why can't I have fixed rollover costs in forex?

    In the forex market, trades are made on many foreign currencies around the world. Much like in the equities market, in the ... Read Answer >>
  3. In the forex market, how is the closing price of a currency pair determined?

    The foreign exchange market, or forex, is the market in which the currencies of the world are traded by governments, banks, ... Read Answer >>
  4. What is the difference between trading currency futures and spot FX?

    The forex market is a very large market with many different features, advantages and pitfalls. Forex investors may engage ... Read Answer >>
  5. Can I trade a currency when its main market is closed?

    In the forex market, currencies from all over the world can be traded at all times of the day. The forex market is very liquid, ... Read Answer >>
  6. How does the foreign-exchange market trade 24 hours a day?

    The forex market is the largest financial market in the world, trading around $1.5 trillion each day. Trading in the forex ... Read Answer >>
Related Articles
  1. Trading

    A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.
  2. Trading

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  3. Trading

    Forex Broker Guide

    A Guide To Choosing a Forex Broker
  4. Trading

    Can Forex Trading Make You Rich?

    Forex trading may be profitable for hedge funds or unusually skilled currency traders, but for average retail traders, forex trading can lead to huge losses.
  5. Trading

    How To Become A Successful Part-Time Forex Trader

    Getting started in this potentially profitable market is easier than you might think.
  6. Financial Advisor

    What Is A Pip?

    Learn how this measure of change is used in trading currencies on the forex market.
  7. Trading

    Forex or Stock Trading: Which Works For You?

    Even though the odds favor stock trading, forex trading has several advantages to offer a particular type of investor.
  8. Personal Finance

    Top 5 Books to Become a Forex Trader

    These books are some of the best resources to learn about forex trading, covering everything from the basics of currency trading to advanced trading strategies.
  1. Funding Currency

    The currency being exchanged in a currency carry trade. A funding ...
  2. Rollover Rate (Forex)

    The net interest return on a currency position held by a trader. ...
  3. Rollover

    A rollover is when you do the following: 1. Reinvest funds from ...
  4. Cash Delivery

    1. The same-day settlement of a currency trade in the forex market. ...
  5. Forex Hedge

    A transaction implemented by a forex trader to protect an existing ...
  6. Forex - FX

    The market in which currencies are traded. The forex market is ...
Hot Definitions
  1. Wealth Management

    A high-level professional service that combines financial/investment advice, accounting/tax services, retirement planning ...
  2. Assets Under Management - AUM

    The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked ...
  3. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official ...
  4. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  5. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  6. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
Trading Center