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Margins & Rollovers
Margins in the Forex (FX) market, unlike their counterparties in the purchase of equity (Down payment), provide for a performance bond against trading losses. The utilization of margins allows traders to hold a position much larger than their account value (Leverage). This allows for increased profit capabilities & positions while maintaining a constant counterbalance against trading losses even in a highly volatile market.
A Rollover is used for open daily positions; a trader will either pay or earn interest on their positions depending on the established margin and market position. Rollover positions are an inherent part of the Forex (FX) trading so it is imperative to keep track of the costs associated. Interest is paid on the currency that is borrowed, and earned on the one that is purchased. If a trader is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive – and the client will earn funds as a result. Otherwise, the trader will have to incur a negative rollover and pay as long as the position remains open. (In other words, if you are long (bought) a particular currency and that currency has higher overnight interest rate you will gain and if you are short (sold) the currency with a higher overnight interest rate than you will lose the difference.)
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