• What is a swap and rollover rate?
• Where do these rates come from?
• Why interbank rates rather than benchmark rates?
• What is a “rollover” on futures?

What is a swap and rollover rate?

Swap rates, also known as overnight or rollover rates, are debits or credits, either earned or paid for holding a position overnight.

Normally online FX brokers settle overnight positions at 5.00PM EST using market accepted, interbank swap rates.

Rollover of financial settlement is also referred as the followings:

1. Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies, the swap is also called Tomorrow Next, Tom-Next or T/N.
2. The act of prolonging the settlement date of a running position in the market.

Where do these rates come from?

Large institutions that deal in FX put out daily swap rates – prices they are willing to exchange currencies at on a given day.

Different tier 1 banks put out different swap rates based on their own risk-management analysis and on market activity.

Swap rates are essentially the interbank fee for positions held overnight and are expressed in USD/100,000 lot format, with a separate rate for each currency pair.

Why interbank rates rather than benchmark rates?

Other brokers may continue to offer their overnight rates using an old method that applies benchmark rates based on interest-rate differentials between central banks.

Some believe in maximum transparency and our method, more so than the benchmark method – aligns itself with the market daily.

The interbank swap rate further takes into account recent liquidity, market dynamics and volatility on a given currency pair.

What is a “rollover” on futures?

Futures contracts are assembled in such a way that after a certain period of time they end their existence.

That is, the date of delivery or calculation comes.

Those traders who hold the medium and long term positions on their contracts, of course, have to move from the current futures to the next one, based on expiry date.

Various instruments and markets have their own peculiarities.

For example, oil futures traders have to move from one contract to another every month, and traders who trade currencies – once a quarter.

This is called a “roll over” and is done in order not to meet the delivery date with the open positions on expired contracts on hand.

Working with fixed-term contracts, they definitely need to know the delivery date (the expiration date), which is fixed in the exchange specifications and is different for each commodity or asset.