Interest rates don’t only affect the financial market. Currency trading is also being affected. If you hold a position by overnight, it might change due to the interest rate factor. This is known as the rollover interest rates. Trades that are being started after 5PM EST are known as overnight positions, and it will likely cause the interest to be credit or debit.
Since almost every trade event is linked with the interest rate, hence one must know about two interest rates. Apart from the common knowledge, rollovers don’t work assuming interest rates. Instead, it is calculated on the assuming interest rates that are prevailing in the overnight session.
Either credit or debit interest is applied; the position of a particular account is determined by the position of an account. This means that the rollover’s value will be dependent on the two currencies. When you receive an amount, it will be calculated based on the difference between the prevailing interest rate in every location from where the rollover is received.
In the market, some traders try to rollover trades automatically. This is usually done to avoid speculators, so they can’t deliver the currency to another party involved in the transaction. With rollovers, a trader can only keep its trade open without delivering the actual or face value of a particular currency. Due to the rollovers, a trader can only exchange trade without exchanging the currency. The interest on the rollover is being paid on the full value of the trade, and it doesn’t include the utilized margin. For example, if a trader is having one lot of USD/AUD pair, then a full value will be debited or credit.
The account of the trader will be debited or credited automatically depending on the open position. If a trader, for example, purchases the JPY/USD pair, and in this case, the interest rate on the dollar is 2% and 0.5% on Yen. The account will be credited with a total of 1.5% interest. In the case of selling the same pair, the difference in the interest rate will be debited.