This is how you can calculate rollover interest
Posted on 14. Mar, 2007 by admin in Forex Basics, Forex Market
The costs associated with holding a position for several days are determined by the short term interest rates of the currencies involved in the trade. This ‘cost of carry’ can mean that interest is paid to you or taken from you, depending on which currencies have the higher interest rate.
This cost can be built into a new rate for the new business day (represented in points), can be credited or debited to your account along with the previous days profit or loss (where the broker closes and reopens the trade much like a futures contract), or can simply appear as a cost on your statement.
The official (ACI) method of calculating this is as follows:
“pips = (spot-(((1+quoted currency interest rate)x days/days basis x 100)/((1+base currency interest rate x days)/days basis x100))) x spot)) x -10000
For example, EUR/USD spot is 1.21, the USD interest rate is 4.5% and the EUR interest rate is 2.5%. There is one day to the next business day. Therefore the pip difference is .67 pips. Therefore, if you were short EUR, long USD you should have a trade whereby your position would be established .67 of a pip higher than previously.
Alternatively, the forex broker may credit or debit you account accordingly. In this case, on a $100,000 trade, you would get $15.12 interest on your USD (100,000 x 1.21 x 4.5 x 1 /360 x 100) and pay away $8.40 on the EUR (100,000 x 1.21 x 2.5 x 1 /360 x 100), so you should have $6.71 in your favour “
