Community Forex Questions
What happens to an open position's profit or loss when it is held overnight in forex?
When an open position is held overnight in the forex market, its profit or loss is subject to certain adjustments due to a process called rollover or swap. Rollover occurs because forex trades involve two currencies, each with its own associated interest rate. When a position is held beyond the end of the trading day, the trader either pays or receives the interest rate differential between the two currencies.
If a trader is holding a position in a currency with a higher interest rate compared to the other currency in the pair, they will earn a positive rollover, resulting in a credit to their trading account. Conversely, if the position is in a currency with a lower interest rate, the trader may incur a negative rollover, leading to a deduction from their account. The amount credited or deducted depends on the size of the position and the interest rate differential.
This interest rate adjustment aims to compensate traders for the opportunity cost of holding a position overnight, as they could have otherwise invested their funds elsewhere to earn interest. It's important to note that rollover rates can vary among different brokers and may change daily based on fluctuations in interbank interest rates.
Ultimately, the impact of overnight holding on a position's profit or loss goes beyond the direct price movement of the currency pair. Traders need to consider both the potential gains or losses from price movement and the effect of rollover rates when making decisions about holding positions overnight in the forex market.
If a trader is holding a position in a currency with a higher interest rate compared to the other currency in the pair, they will earn a positive rollover, resulting in a credit to their trading account. Conversely, if the position is in a currency with a lower interest rate, the trader may incur a negative rollover, leading to a deduction from their account. The amount credited or deducted depends on the size of the position and the interest rate differential.
This interest rate adjustment aims to compensate traders for the opportunity cost of holding a position overnight, as they could have otherwise invested their funds elsewhere to earn interest. It's important to note that rollover rates can vary among different brokers and may change daily based on fluctuations in interbank interest rates.
Ultimately, the impact of overnight holding on a position's profit or loss goes beyond the direct price movement of the currency pair. Traders need to consider both the potential gains or losses from price movement and the effect of rollover rates when making decisions about holding positions overnight in the forex market.
When a forex position is held overnight, its profit or loss continues to fluctuate based on price movements in the market. The trade remains open, meaning unrealised gains or losses can increase or decrease until it’s closed. In addition, traders may be charged or credited an overnight swap or rollover fee, depending on the interest rate difference between the two currencies in the pair. If the position is long on a higher-yielding currency, the trader might earn interest; if it’s on a lower-yielding one, they might pay it. These costs or credits are automatically applied by the broker. Holding trades overnight also exposes traders to potential volatility from global news or market gaps when trading resumes.
Aug 22, 2023 14:12