What are rollover rates in trading?

Rollover rates represent the financing adjustment applied when positions are held overnight, calculated from interest rate differences. Essentially, a rollover occurs each time the settlement of an open position is extended from one trading day to the next, and the rollover rate determines the cost or credit associated with that extension. The terms "rollover" and "swap" are often used interchangeably in the trading industry, as they refer to the same underlying mechanism.

The rollover rate for a given instrument is derived from the interest rate differential between the two currencies or assets involved in the trade, adjusted for platform-specific factors and current market conditions. In forex trading, for example, the rollover reflects the difference between the overnight lending rates of the base and quote currencies. If a trader holds a long position in a currency with a higher interest rate than the one being sold, the rollover may result in a small credit. In the opposite scenario, a charge is applied. For non-forex instruments such as stock CFDs or commodities, rollover rates are typically based on benchmark financing rates plus any applicable platform adjustments.

Rollover rates can be positive or negative depending on the direction of the trade and the current interest rate environment, which means they should be factored into the planning of any trade expected to last more than a single session.