What Is Rollover Credit?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 December 2019
  • Copyright Protected:
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
In 2013, "Star Wars: A New Hope" became the first major motion picture to be dubbed into the Navajo language.  more...

December 14 ,  1911 :  The first explorers reached the South Pole.  more...

A rollover credit is a type of interest payment that is made to an investor who is engaging in currency trades on a foreign exchange or Forex market. The credit has to do with the decision to hold a position on a given currency or set of currencies past the end of the trading day and into the beginning of the following trading day. The position must be one that is considered open in order to be eligible for the rollover credit, since closed positions are considered ended as of the end of the current trading day.

Determining the amount of the rollover credit requires identifying the rate of interest that applies to the currency or currencies that are being traded. A situation in which an investor is purchasing a currency that carries a rate of interest that is lower than the currency that the same investor is selling, can result in what is known as a rollover debit, assuming that the position is being held until the following trading day. If the currency being purchased has an interest rate that is higher than that of the currency being sold, and the position is being held until the market opens again, then a rollover credit is issued. When the rates of interest for both currencies involved are the same, then there are no provisions for issuing a credit or a debit.


One of the benefits of the rollover credit is that investors can actually maximize the returns on the trading activity by holding positions until the following trading day and earning the credit. This can be especially helpful since currency trading is a fast-paced investment situation in which positions can change very quickly. Assuming that the investor has accurately projected the movement of the currencies involved, it may be possible to hold the position at the close of the current trading day, open with that position the following day and receive the credit, then proceed with changing the position before the rate of exchange between the two currencies becomes unfavorable.

While holding a position in order to receive the rollover credit is a great way to increase earnings from currency trading, the process does call for being able to understand what is likely to happen on the following day of trading. This includes being able to project the rate of exchange that will apply when the market opens the following day. What may seem like a favorable position at the end of the trading day can quickly turn into a position that creates a loss, depending on what factors exert influence on the exchange rates. For this reason, structuring a position to hold overnight is best managed by investors who have a great deal of experience and understand the nuances of Forex trading.


You might also Like


Discuss this Article

Post your comments

Post Anonymously


forgot password?