On a roll

A trader who holds a spot forex position overnight can benefit from “positive rolls” — interest earned on a currency pair position when the trader is long the higher-yielding currency.

For example, a trader who is long the U.S. dollar/Japanese yen pair would get a positive roll, because the interest rate on the U.S. dollar is 5.25 percent and only 0.5 percent on the Japanese yen.

Likewise, if a trader were long the New Zealand dollar (which has an interest rate of 7.25 percent)/U.S. dollar, he would also gain from a positive roll.

Different brokerages have different policies regarding positive rolls. FXCM, which recently gave its traders the option of trading without a trading desk, eliminated the margin requirement for clients to receive interest from positive rolls.

Previously, FXCM customers needed margin of 2 percent or more.

The new policy mirrors that of several other forex firms. For example, Gain Capital gives positive rolls to all customers, regardless of if they have a margin account or not. FXSolutions has similar guidelines. XPRESSTRADE had previously required a minimum margin of 2 percent, but their trades are executed through FXCM, and the firm is in the process of determining how that affects clients.

All firms say open positions begin earning interest at 5 p.m. ET, and the interest rate is dependent on the difference between the corresponding interest rates. For example, a U.S. dollar/Japanese yen position, where the difference in interest rates is 4.75 percent, would give a trader more interest than a U.S. dollar/British pound position, where the difference is 1.5 percent.

The interest rate paid is not entirely based on the interestrate spread — the positive roll on a position with a 3 percent spread will not necessarily be exactly twice the positive roll on a position with a 1.5-percent spread. The approximate formula is (# of lots * # of units per lot * rate differential) / 360.

The amount of the positive roll can change based on market conditions. Current rates can be found via the various brokerages’ trading platforms.