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- CFD Rollover
CFD Rollover
It is well known that when traidng in Forex and CFD markets investors may maintain their positions open not only for a couple of hours, but for longer time periods as well. So, rollover can be defined as the transfer of these positions to the next day.
What Is a Rollover?
“Rollover” is a well known term among economists and may have different meanings depending on the sphere of application.
According to an economic dictionary, rollover may have the following meanings:
- Prolongation of credit deadline by its technical repayment and simultaneous resumption of a new credit
- Transfer of funds from one form of investment to another
Notion of “rollover” is widely spread among traders and is actively applied by dealing centers and brokerage companies.
CFD rollover, as a process of transferring positions to the next day, assumes swap accrual.
CFD Rollover and Swap
Swap is an interest, that is debited from or credited to trader’s position for the rollover (overnight) to the next trading day. Calculation of Swap for precious metals is linked to the corresponding currency, US Dollar or Euro. Thus, for example XAUUSD instrument (Gold against US Dollar) the quoted currency is the U.S. Dollar. When the client open a short position on this instrument, the client pays for borrowing gold at a discounted rate and receives the accrual for deposit U.S. dollars based on the interbank rates. The same scheme operates for other instruments from the Metals Group.
Calculation of the Swap for stock indices is performed in the currency of the country of the index. Thus, in case of FTSE100 instrument, British stock Index CFD is linked to British Pound. While opening a short position on the instrument, the client pays for borrowing contracts for Index and receives an accrual for depositing British Pounds on the basis of the interbank rate. The same scheme works for other indices.
In case of Commodity CFDs, Swap calculation is performed in the quote currency of the instrument. For example, OIL, Light Sweet Crude Oil (WTI) is linked to U.S. Dollar. While opening a short position on the instrument, the client pays for borrowing contracts for oil at a reduced rate and receives an accrual for depositing US Dollars on the basis of relevant interbank rate.
Swap for Stock CFDs is usually appointed as a fixed sum - actually negative one for long as well as short positions. Less often, just as in case of Currency pairs, Swap is linked to short-term interbank rates, but in this case, companies may add their own quite significant interest, thereby, worsening the conditions for clients.
It is well known that on Forex Markets currency pairs are being bought and sold, and every currency has its own interest rate, determined by national banks.
On CFD market the rollover is calculated based on the rollover of the underlying asset and the asset quoted. The difference between asset interest rates is the basis of rollover determination. If when buying a currency its rate is higher than the interest rate on the sold currency, the rollover is accrued on the trading position. If while buying a currency its rate is lower than the interest rate on the currency sold, the rollover is debited from the trading position. Thus, rollover may create additional income as well as cause additional losses. Moreover, the amount of charge or cheating is directly proportional to the amount of the transaction.
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