Rollover Interest

CMS Forex pays or charges clients rollover interest at competitive rollover rates for all open mini and standard positions.

At the end of the trading day, at 5 pm EST, an account with any open positions is either credited or debited interest on the full size of the positions. This is known as rollover interest. Rollover interest is calculated based on the full value of the client’s position rather than the value of the margin or collateral necessary to take on that position. A client holding one standard lot of USD/JPY, with $5,000 in his or her account will be assessed interest on the $100,000 of the position rather than on his or her $5,000 account balance. Whether an account is credited or debited depends on the direction of the client’s position and the interest rate differential between the two currencies involved. For instance, the primary interest rates in Great Britain are much higher than in Japan, so if a trader buys GBP, he or she will earn interest at 5 pm EST. On the other hand, if he or she sells GBP in this currency pair, he or she will pay interest at 5 pm EST.

Rollover refers to the process of closing open positions for today’s value date and opening the same position for the next day’s value date at a price reflecting the difference in interest rates between the two currencies.

In the spot Forex market, rollover is required because all trades must be settled in two business days. In accordance with international banking practices, CMS Forex automatically rolls over all open positions for settlement to the next date at 5 pm EST. Rollover involves exchanging the current position for a position expiring the following settlement date. For example, for traders who execute on Monday, the value date is Wednesday. An exception occurs when a position is opened and held overnight on Wednesday; the normal value date would be Saturday, but because banks are closed on Saturday, the value date is actually the following Monday. Due to the weekend, positions held overnight on Wednesday incur or earn an extra two days of interest. Trades with a value date that fall on a holiday also incur or earn additional interest.

Rollover interest can provide an added stream of profit or loss to a client. As an example, a trader that believes the Great Britain Pound's exchange rate will stay roughly equal to the Japanese Yen's for the next year, will buy the GBP/JPY pair since the Pound has a higher interest rate and will accrue rollover interest. An account would be credited around $20 a day* for a standard GBP/JPY lot. If this trader’s prediction comes true and the exchange rate is the same a year later, with fluctuations in between**, they would earn a year’s worth of interest on the position. Since there are around 365 interest bearing days in a year, that one standard lot of GPY/JPY could potentially earn $7,300 (365 × $20).***

* This rollover rate for the GBP/JPY is indicative of the rate on November 2nd, 2006. (The actual rate for long GBP/JPY on that date is $22.40)

** This example assumes the position does not receive a margin call during these fluctuations. See Trading Terms – Margin Call Policy for information on margin calls.

*** The amount here assumes that the interest rate differential between the British Pound and Japanese Yen did not change through the year.