Rollover, also known as swap, is the interest earned or paid for a position kept open overnight, which is caused by a interest rate differential between the currency pair traded.
In this example, the interest rate on the US dollar is 5.5% and the interest rate on the Japanese yen is -0.1%. So the rollovers equivalent to the difference of 5.6% will be generated every day. If you buy US dollar and sell yen, you will receive rollovers. However, if you sell US dollar and buy yen, you will pay rollovers.
Carry Trade
Carry trade is one of most popular forex strategy. Traders will aim to generate consistent returns from rollover, by borrowing in a low-interest-rate currency and investing in a high-interest-rate currency.
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How Carry Trade Works
To receive rollovers, traders can simply hold a buy position of currency pairs, with a higher interest rate currency as the target (buying) currency.
For example, when USD has higher interest than JPY, traders can earn rollover rateby holding a buy position of USD/JPY overnight.
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Benefits of Carry Trade
1. Steady income Carry trade can give traders consistent returns if markets stay stable, in addition to the potential profit from the rate difference.This strategy allows traders to aim for profits even when market volatility is low.
2. Leverage When traders open the position using leverage, profit from rollovers can be substantial depending on the amount of leverage used.
*Traders may suffer a loss from the currency rate fluctuations and the resulting losses offset the positive interest payments.
Profit simulation
As rollover is generated daily, yields will continue to increase by holding a high interest rate currency for a long period. If rollover of buying USD/JPY is $10.2 per day, traders can receive more than $36K by holding a buy position of 100K for one year.
With Rakuten Securities HK, traders can enjoy competitive rollover rate for 2 platforms.
Rakuten Securities Hong Kong Limited (“Rakuten Securities HK” SFC CE Number: AIM232)
Trading in leveraged foreign exchange carries a high level of risk, and may not be suitable for all investors. You should fully understand its key features and risks before making any investment decisions, appropriate professional advice should be sought when necessary. Trading in leveraged products may result in your losses exceeding your initial margin funds. The content in this webpage is not and shall not be construed as investment advice. This information is meant to be informative and for general purposes only. It does not take into account your individual needs, investment objectives and financial situation. Please click here to view the relevant risk warning.
