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Part 8

Discussion in 'Beginners Bootcamp' started by SwingTrader1, Jun 27, 2010.

  1. SwingTrader1

    SwingTrader1 Recruit

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    Rollover

    Is the difference between two currencies.

    My example will not use CURRENT rates but nice round numbers to help make the point.

    First we'll do a quick review using the EUR/USD

    When you buy a currency pair what you are doing is buying the euro and simultaneously selling the usd. When you sell a currency pair what you are doing is selling the euro and simultaneously buying the dollar.

    Now that we know what happens when buying or selling a currency pair we can figure out rollover.

    Using the EUR/USD lets say the cental bank rate for the Euro is 7% and the cental bank rate for the USD is 2%

    Rollover is calcualetd by subtracting the currencies central bank rate of the subordinant currency from dominant currencies central bank rate.

    Example when you buy the EUR/USD rollover would be calculated like this
    7% -2% = 5% that means that if a trader is eligible for rollover they are entitled to 5% of the lot size they are trading based on 365 day year.

    If a trader sold the EUR/USD with the same central bank rates then it would be the exact opposite.
    2% - 7% = -5% or rather the trader would be obligated to pay rollover of 5%

    Couple of points.

    If a trader does not have any open positions after 17:00 EST they will not be charged or receive rollover. Rollover is for overnight positions in the market.

    The amount of rollover a trader receives is based upon what tier they are trading with their broker. In a nut shell the more money and less leverage a trader uses the more rollover a trader will pay or receive.

    Rollover is a significant factor for swing and position traders.
     

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