Roll Over in Trading: Your Practical Guide to Making Money While You Sleep

If you are a trader and haven’t mastered the concept of roll over yet, it’s time to understand how this tool can become your ally in the forex market. It’s not complicated jargon, but rather something quite straightforward that every trader should know.

What is really roll over?

In simple terms, roll over is the action of extending a trading position beyond its original session. When you keep an open trade overnight, you are doing a roll over. This applies in forex and also in other markets such as CFDs on stocks, commodities, and indices.

The reason behind this is that both currencies have associated interest rates. Your broker lends you money in the secondary currency so you can trade the base currency. Therefore, when you prolong your trade, these overnight financing costs come into play, also known as “swap.”

What’s interesting is that the roll over can work in your favor or against you, depending on how the interest rates align.

How does roll over work in the forex market

Here’s the fundamental part: when you do a roll over on a currency pair, you have the right to earn interest on the base currency and the obligation to pay interest on the secondary currency.

If we go long:

• We earn if the interest rate of the base currency is higher than that of the secondary currency
• We lose if the opposite occurs

If we go short:

• We earn if the interest rate of the base currency is lower than that of the secondary currency
• We lose in the opposite scenario

The difference between these rates determines whether the roll over benefits you or costs you money.

Calculating the roll over: Practical formula

Here’s how to precisely calculate how much you will pay or earn for holding an open position:

Rollover = [(Interest rate differential) / 360 days] × Position Size × Opening Price × Number of Days

Where the interest rate differential = Annual rate of base currency - Annual rate of secondary currency

Real example with GBP/USD

Imagine you expect the pound to rise against the dollar and open a long position of 1 lot (100,000 £) at 1.13579 USD/£. The annual rates are 0.75% for GBP and 1.00% for USD.

Rollover = (0.75% - 1.00%) / 360 × 100,000 × 1.13579 × 1 day = -0.78874 £

In this case, your winning trade of 20 pips would need to be reduced by 0.78874 £ due to rollover cost. The negative differential cost you money.

Strategies to profit from roll over

The key is to select currency pairs where the roll over works in your favor. Consider these scenarios:

Long positions (long): Look for pairs where the base currency has higher interest rates and is also appreciating. The USD/JPY since March 2022 was a perfect example, with the dollar gaining 22.7% until October. Here, you gained both from appreciation and positive roll over.

Short positions (short): Find pairs where the base currency depreciates and has lower rates. GBP/USD experienced a depreciation of 13.8% from March to October 2022, allowing combined gains from price movement and financing.

Factors that move the roll over

Roll over is not fixed. It changes according to two main elements:

Monetary policy of central banks: When the ECB or the FED adjust rates, the roll over changes. This directly affects the differential you pay or receive.

Inflation: As inflation rises, central banks raise rates to curb it. When inflation drops, rates tend to decrease as well. This directly impacts your roll over.

Staying alert to these changes allows you to anticipate when the roll over will favor you more.

Roll over in CFD: Beyond forex

The concept of roll over is not limited to currencies. CFDs on stocks, indices, and commodities also have rollover costs when you hold positions beyond a session.

CFDs are derivatives that allow you to trade the price difference without buying the actual asset. With leverage, you can operate with more capital than you have. However, remember that leverage amplifies both gains and losses.

With non-forex CFDs, you will always pay rollover costs to keep positions open. It’s a cost to consider in your risk management.

Who benefits from roll over?

If you do intraday trading (minutes or hours), close all your trades before 22:00 GMT, so rollover does not affect you.

But if you practice swing trading (days, weeks, months), rollover is a tool you should master. It allows maintaining longer trades and, if your strategy is well-designed, adds an extra benefit to your gains from price movement.

Practical conclusion

Many traders ignore roll over and underestimate its costs. But if used correctly, it can be a factor that multiplies your profits or, in the worst case, reduces your losses. The key is to choose pairs where the interest rate differential is favorable, monitor changes in monetary policy and inflation, and always calculate the total impact before opening long-term positions.

Rollover is not complicated. It’s just another variable that smart traders learn to use to their advantage.