Rollover fees are often overlooked, yet they can seriously affect a forex trade’s profit or loss, depending on the currency pair, your forex dealer’s rules and each trade’s length. These charges are based on the interest-rate difference between the currency you buy and the one you sell (or vice versa) when you trade a currency pair and hold it past the daily rollover time — typically 5 p.m. ET. For example, if you go long GBP/USD and hold it “overnight,” or past 5 p.m., your forex broker may give you a small credit because you bought British pounds and sold U.S. dollars at the same time, and shortterm interest rates are currently higher in Great Britain than the U.S. Similarly, if you short this currency pair, your broker may charge a small fee as the trade “rolls over” into the next day. (For more information about rollovers, see “Rollover fees: Understanding the fine print.”)

While rollovers don’t apply to intraday traders, this feature is the crux of the carry trade, or buying a currency with a higher interest rate and simultaneously selling one with a lower rate and earning the difference between both rates (see “Getting a lift from the carry trade,” Currency Trader, Oct. 2004). Like dividends, any rollover fees you earn (or owe) are separate from the currency pair’s gains or losses, but they can help enhance a trade’s profit or mitigate its loss if the daily rollover is in your favor.

0 comments