## rollover interest calculation

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michal.kreslik
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### rollover interest calculation

Hello, friends,

the issue of calculating the amount of interest credited or charged to your account at rollover time might not be such a trivial issue as it might seem at first.

The input information you need to have is:
• borrow interest % of the base currency if you are long / lend interest % of the base currency if you are short
• lend interest % of the quote currency if you are long / borrow interest % of the quote currency if you are short
• number of units of base currency in the position
• number of units of quote currency in the position
• exchange rates for the base currency/"home currency" and/or the quote currency/"home currency" if you want to know what the grand total interest is in your "home currency" (for GBP/JPY, you will probably want to know what's the interest charged/credited in USD, even though USD is not present in this FX pair, which means you need to know what GBP/USD and JPY/USD is, too)
Borrow interest for the currency is always going to be lower than the lend interest. It's basically the same as with your bank: they will pay you 2% interest rate on your savings account (the borrow interest rate - the bank is borrowing the money from you), but they will charge you 10% if they lend the money to you (the lend interest rate).

So the total interest credited / charged is simply the sum of the following equation:
• (amount of borrow interest on your long currency) - (amount of lend interest on your short currency)
Now wait a minute: how can you be long and short at the same time? Actually, you are always long and short at the same time: if you are long EUR/USD, you are long EUR and short USD. If you're short GBP/USD, you are short GBP and long USD.

The amount of borrow interest on your long currency is determined by the following equation:
• (borrow interest %) * (units of long currency) * 1/365
The result is going to come up in the units of long currency. "1/365" means that we are calculating the interest for one business day. Keep in mind that for Wednesday rollover, you get credited/charged 3 times the daily interest. That's because the settlement time for Forex spot trades is two business days and on Wednesday, you are actually rolling over from Friday settlement day to next Monday settlement date. Thus, Saturday's and Sunday's interest is summed up with the Friday's one.

Similarly, the amount of lend interest on your short currency is determined by the following equation:
• (lend interest %) * (units of short currency) * 1/365

As stated above, you will probably want to have the result in your "home" currency, which is mot likely the currency in which your trading account is denominated: USD. This means that you need to convert the amount of interest credited on the long currency / charged on your short currency to your home currency.

The interest credited / charged can also be recalculated to pips of the FX pair in question.

To make the long story short, I've set up the calculation in Excel:

The Excel sheet is attached below.

Michal
Attachments
rollover calculation.zip

michal.kreslik
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### Re: rollover interest calculation

michal.kreslik wrote:Keep in mind that for Wednesday rollover, you get credited/charged 3 times the daily interest. That's because the settlement time for Forex spot trades is two business days and on Wednesday, you are actually rolling over from Friday settlement day to next Monday settlement date. Thus, Saturday's and Sunday's interest is summed up with the Friday's one.

This is true for holiday rollovers, too. If the settlement day for a spot Forex position falls on a holiday, its settlement day is shifted towards the first available business day ahead instead.

So let's say there's a busines week with a holiday that falls on Thursday. On Monday, you're holding your FX spot position and its settlement day is Wednesday. You're rolling over this position at 5 mp ET to the next settlement day, which is Friday (as Thursday is a holiday). Thus, on Monday, you're getting paid or charged the rollover as if you were holding the position for 2 days total.

Michal