Forex Rollover Broker Fees May Eat Into Your Profitability
One of the things that you have to keep in mind with forex rollover is that your broker will charge you fees for implementing them. Rollovers are credited or debited on positions that are held at least overnight and is related to Tom/Next Swaps. T/N Swaps happen because positions are not literally held open overnight but closed at the closing rate and re-opened the next day at the new opening rate. Because of this, there may be interest rate differences, the cost of which the broker will pass on to the trader.
The forex rollover fee is expressed in pips (differences between interest rates) and is similar to T/N Swap fees. Hence if the difference is 4 pips, this might translate to $4 per lot per day. To determine your net profit, you should subtract this fee from the daily rollover fee you earn.
In addition, retail brokers will also charge bid/offer spread fees on rollovers. Because of this, you will be credited less for rolling over a long position on the currency that has a higher interest rate in a currency pair compared with the fee you will be debited when you rollover a short position on this same pair. If you are planning to hold your position for a long period, this means that broker’s rollover fees can accumulate over time. You can save money by comparison shopping among the various brokers to find the one that offers you the most competitive rollover spread fees. If you want to know the cost of a forex rollover from your broker, there are online tools that you can use to compute fees to see if they are beneficial to you. Or if you trade in the forward markets, you can ask for your trades to be rolled out on a future date instead of having them automatically rolled over.
Some brokers may also have certain requirements before the fees are paid. For example, the broker may require you to have a certain percentage of margin in your trading account.
Another consideration when choosing a broker is how they compute rollover fees. While the majority of brokers compute fees on an overnight basis, others compute it based on the actual number of hours that you hold the position. The latter type of computation may offer fees that are more beneficial for you, so you should also check out traders who offer them.
A final consideration to take into account is which particular currency pair you are trading. In general, the US dollar, UK pound, Australian dollar and New Zealand dollar have high interest rates and the Japanese yen and Swiss franc have lower rates. Hence, samples of currency pairs that have positive forex rollover include AUD/USD, USD/JPY and USD/CHF. While interest rates generally change on a daily basis, in times of high volatility, rates may change on an intraday basis so you should check with your trading platform.
To familiarize yourself with trading using forex rollover you should consider opening a demo account with your trader and practice paper trading forex first before you risk trading with real money.
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