Among many reasons Forex markets are interesting to award winning brokers and traders alike is the nearly limitless possibility for making money. For instance, just by keeping a position overnight, you could potentially receive interest. This is caller rollover interest, and this article deals with some of its aspects, including rollover credits and debits: what are they, how do they work and most importantly, how can they make you some money?
So, what are these credits and debits?
In this particular case, credits and debits are essentially accounting entries. Credits and debits go hand in hand – with one counteracting the other. For every debit on one account, there has to be a matching credit on the other, and vice versa. A credit either decreases assets or increases liabilities. Needless to say, a debit can also affect assets or liabilities: a debit on assets means an increase in assets while a debit on liabilities (or your account) means a decrease, and all of these can reflect on the balance sheet.
Having said that, Forex rollover interest is awarded or debited to Forex traders’ accounts if they hold open positions at 5 p.m. EST (the exact “closing” time may depend on the market), or have opened a deal just before that time. It counts as being held overnight and interest is deposited onto the trader’s account or deducted from it – depending on the positions they are holding, or the currencies they are trading. Furthermore, in some markets, rollover for Saturday and Sunday is conducted on a weekday (usually Wednesday) so interest can be exploited to an even extent – two extra days, not bad for a single afternoon.
How can Forex rollover work in your favor?
Well, Forex rollover is carried out automatically. Normally, the deal gets realized two days after it is made, but you can keep your positions open and not deliver the full value of your currency position, potentially making money on interest. And this interest is paid on the entire trade value, so it can be quite lucrative. Whether interest is credited or debited depends on interest rates of the currency pair.
For instance, if you are trading a currency pair where the currency you are buying has a higher interest rate than the one you are selling, you get credited the differential between the two rates, or debited if the currency you are buying has a lower interest rate than the currency you are selling. There are numerous factors determining a currency’s interest rate, but this is another topic altogether. In any case, traders in advantageous positions (in terms of interest rates) have an incentive to keep their positions open for as long as possible, netting themselves a nice sum on the side – even more if they use leverage, wisely.
Every time a positions are kept “overnight”, Forex rollover is automatically applied. Savvy traders use this to their advantage, procrastinating advantageous positions and closing that which are not – and so can you.