Rollover
Rollover is the interest credited or debited to a trader’s account for holding a position open past the daily settlement time, typically 5:00 PM New York time (EST/EDT).
Quick Definition Box
Rollover, also called swap or overnight financing, is a fee or credit applied to leveraged positions held beyond a single trading day. It reflects the interest rate differential between the two currencies in a forex pair or the cost of borrowing for CFDs. The amount depends on position size, direction (long or short), and prevailing interest rates.
Detailed Explanation
In forex and CFD trading, every open position is essentially a contract that must be settled at the end of each trading day. When you hold a position past the rollover time (usually 5:00 PM EST), your broker automatically “rolls over” the settlement to the next business day. This process involves either paying or receiving interest, known as the rollover rate or swap rate.
The rollover calculation is based on the interest rate differential between the two currencies in a forex pair. For example, if you buy EUR/USD, you are effectively buying euros (earning the euro interest rate) and selling US dollars (paying the dollar interest rate). If the euro interest rate is higher than the dollar rate, you may receive a credit. If it is lower, you pay a debit.
For CFDs on indices, commodities, or stocks, rollover reflects the cost of borrowing the underlying asset’s value from the broker. This is typically a small daily charge based on the position’s notional value and a benchmark rate (like LIBOR or SOFR) plus a broker’s markup.
Rollover is applied automatically to your account balance at the end of each trading day. On Wednesdays, forex rollover is typically tripled to account for the weekend settlement gap (since positions held through Wednesday are settled on Friday, covering Saturday and Sunday). For CFDs, triple swap may apply on Fridays, depending on the broker.
The exact rollover amount is calculated as:
Rollover (in account currency) = (Position Size × (Interest Rate Differential ± Broker Markup) × Number of Days) / 365
Where:
- Position size is in units of the base currency (e.g., 100,000 for 1 standard lot).
- Interest rate differential is the difference between the central bank rates of the two currencies (or the benchmark rate for CFDs).
- Broker markup is a small fee added or subtracted by the broker.
- Number of days accounts for triple swap on Wednesdays (3 days instead of 1).
Real-World Example
Let’s say you open a long position of 1 standard lot (100,000 units) on EUR/USD on Monday at 2:00 PM EST. You hold it past 5:00 PM EST on Monday.
Assume:
- Eurozone interest rate: 4.00% per annum
- US interest rate: 5.50% per annum
- Broker markup: 0.25% per annum
- EUR/USD exchange rate: 1.1000
The interest rate differential for a long position = Euro rate – US rate = 4.00% – 5.50% = –1.50%. Adding the broker markup (which is usually applied as a spread), the net rate might be –1.75% (you pay).
Rollover for 1 day = (100,000 × (–1.75%) × 1) / 365 = –1750 / 365 ≈ –4.79 euros.
Converted to US dollars at 1.1000: –4.79 × 1.1000 ≈ –$5.27.
So you would pay approximately $5.27 in rollover for holding that position overnight. If you had shorted EUR/USD instead, you would receive a credit because you are selling the lower-yielding euro and buying the higher-yielding dollar.
Now consider a CFD example: You buy 10 contracts of US Tech 100 (an index CFD) at 15,000 points. Each contract is $1 per point, so position value = $150,000. Assume the broker’s annual rollover rate for long positions is 2.5% (based on SOFR plus markup). Daily rollover = ($150,000 × 2.5%) / 365 = $3,750 / 365 ≈ $10.27 per day. On Friday, triple swap applies: $10.27 × 3 = $30.81.
Why It Matters for Traders
Rollover directly impacts the profitability of positions held for more than one day. For day traders who close all positions before rollover time, this cost is irrelevant. However, for swing traders, position traders, or anyone holding trades overnight, rollover can accumulate significantly over weeks or months.
Key practical implications:
- Carry trades: Traders may intentionally buy high-yielding currencies and sell low-yielding ones to earn positive rollover (credit) as part of their strategy.
- Cost of holding: For long-term positions, rollover can erode profits or increase losses, especially if the interest rate differential is unfavorable.
- Triple swap days: Holding through Wednesday (forex) or Friday (CFDs) means three times the normal rollover, which can surprise traders unaware of the schedule.
- Account currency impact: Rollover is calculated in the base currency of the pair or the CFD’s denomination, then converted to your account currency, adding exchange rate risk.
Traders should always check their broker’s rollover rates, as markups vary. Some brokers display daily swap rates in their trading platform or on their website.
Common Misconceptions
Misconception 1: Rollover is the same for all brokers. Fact: Rollover rates vary significantly between brokers due to different markups, liquidity providers, and calculation methods. Always verify with your specific broker.
Misconception 2: Rollover only applies to forex. Fact: Rollover applies to all leveraged products held overnight, including CFDs on indices, commodities, stocks, and ETFs. Each product has its own financing rate.
Misconception 3: You can avoid rollover by closing and reopening positions. Fact: While closing before rollover avoids that day’s fee, reopening the next day incurs new spread costs and potentially new rollover. This is not a practical way to avoid fees, as transaction costs usually outweigh any savings.
Misconception 4: Rollover is always a cost. Fact: Rollover can be a credit if you are on the favorable side of the interest rate differential. For example, long AUD/JPY when Australian rates are higher than Japanese rates can earn you money overnight.
Related Terms
How XM Compares
XM, like most regulated brokers, applies rollover (swap) to all positions held past the daily cut-off time. XM publishes its swap rates for each instrument in the trading platform and on its website. The rates include a small markup, which is standard industry practice. XM also applies triple swap on Wednesdays for forex and on Fridays for CFDs. Traders should note that swap rates can change based on central bank interest rate decisions and market conditions. For the most accurate and current rollover rates, always refer to XM’s official pages or contact their support team.
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⚠️ This glossary entry is educational. Forex/CFD trading carries high risk. This is not investment advice.
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