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Roll Over

Updated on July 18, 2023

In currency markets, a rollover refers to the extension of a maturing foreign exchange transaction or the renewal of a maturing currency deposit or loan. It involves prolonging the duration of an existing transaction or financial instrument to a later date.

How does Rollover work?

When a foreign exchange transaction, such as a spot trade or forward contract, reaches its maturity date, the parties involved may choose to roll over the transaction. Instead of settling the transaction and delivering the currencies as originally agreed, they agree to extend the maturity date. This allows them to maintain their positions and continue holding the currencies without physically exchanging them.

What are the benefits of rollover?

Rollovers can be beneficial for various reasons. They provide flexibility and continuity to market participants by allowing them to extend their positions or financial commitments.

Rollovers also help avoid the need for the physical delivery of currencies or the disruption of existing financial arrangements.

Rollovers in currency markets enable traders to extend their currency positions beyond the original settlement date, ensuring continuity in their holdings.

Traders can adapt their market exposure by utilizing rollovers, allowing them to adjust their positions according to evolving market conditions.

Rollovers offer a time-saving and cost-effective solution by eliminating the need for physical currency exchange and reducing transaction expenses.

By employing rollovers, traders can manage and mitigate currency risk, providing a tool for effective risk management and potential hedging strategies.

Rollovers may generate additional income for traders through favorable interest rate differentials, enhancing overall profitability.

Long-term investors benefit from rollovers as they offer a convenient method to maintain currency investments over an extended duration without frequent trading activities.