Rollover
Technically, a trade has to be closed after two days but a trader might be interested in continuing with the trade to benefit with the next day's rates. This continuing of the trade to the next day is known as rollover. Rollover is akin to closing the existing position and re-entering at the new opening rate the next trading day. Hence, the settle date extends by one day.
What's the reason for rollover?
Every forex trade is transacted by borrowing one country's currency to buy another currency. Hence, interest has to be paid on the borrowed currency. Hence, a trader has to pay some interest if there is rollover.
How is the rollover decided?
If the currency that you have invested in high yielding currency relative to the currency that he or she borrowed, he will receive an amount of interest in his or her account. In the reverse case, the trader will have to pay interest.
Is there a way to avoid rollover?
Yes. To avoid rollover, you should close your positions before 5 p.m. EST.
A point to remember: The income that is received as interest from rollover is not considered as a gain from forex trades by the IRS. Instead, it is considered as a normal income. Hence, the trader should keep track of these interests.
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