Rollover Methodology for Saxo retail clients
Year-end ‘turn’ effect in FX swap points
What are Forex rollover?
The FX Spot market is used for immediate currency trades. The term “Spot” refers to the standard settlement convention of two business days after the trade date (known as T+2)(1). For example, a EURUSD trade executed on a Monday will settle on a Wednesday (if there is not a public holiday in either currency on Tuesday or Wednesday, in which case the trade will be settled on the next available business day). The settlement period refers to the amount of time that is allowed to both parties to satisfy the trade’s obligations. At Saxo, FX Spot trades do not settle. Instead, open positions held at the end of a trading day (17.00 Eastern Standard Time) are rolled forward to the next available business day (2).
The rollover is made up of two components: the Tom/Next swap points (Forward Price) and the financing of unrealised profit/loss (Financing Interest).
- Tom/Next swap points (Forward Price)
The swap points used are calculated using market swap prices from Tier-1 banks, plus/minus a mark-up corresponding to +/- 0.45% of the Tom/Next interest swap rates. The final rate is used to adjust the opening price of the position(3).
- Financing of unrealised profit/loss (Financing Interest)
Any unrealised profit/loss on positions that are rolled from one day to the next are subject to an interest credit or debit. The unrealised profit/loss is calculated as the difference between the opening price of a position (possibly corrected for previous Tom/Next rollovers) and the spot price at the time that the rollover is performed.
The rate is calculated based on the daily market overnight interest rates plus/minus a mark-up corresponding to +/- 2.00%. The final rate is used to adjust the opening price of the position(3).
Rollover Procedure
Example: Buy 100,000 EURUSD Spot on Monday, Sell 100,000 EURUSD Spot on Tuesday.
|
Day |
Value Date |
Position |
Description |
|
Mon |
Today (“T”) |
+100,000 |
➢ Trade to buy 100,000 EURUSD T+2 at 12.00 GMT |
|
Tue |
T+1 |
-100,000 |
➢ Trade to sell 100,000 EURUSD T+2 at 03.30 GMT ➢ Opening (buy) position rolled from T+2 to T+3 at 10.00 GMT*4 ➢ Unrealised profit/loss available in MyAccount from 10.00 GMT*5 ➢ EOD files available from 10.00 GMT* |
|
Wed |
T+2 |
|
➢ Realised profit/loss available in MyAccount from 00.00 GMT* ➢ Forex Rollover report available from 04.00 GMT* |
*Round time to the nearest hour based on historical data.
Notes:
1 The standard settlement convention of T+2 is applicable for the majority of currency pairs; however there are exceptions to this rule e.g. USDCAD, which has a settlement convention of one day after the trade date (T+1).
2 The global market convention is that the value date rolls forward at 17.00 Eastern Standard Time, however there are exceptions to this rule e.g. NZD, which rolls forward at 07.00 New Zealand Daylight Time.
3 Applicable to the default rollover methodology which is described in ‘Method 1: Normal Forward’ below.
4 From a Best Execution perspective, the market price for each currency is observed in the trading session with the best liquidity on average. This means that market prices in all currencies, except SGD, HKD, CNH, THB, are observed in the European session between 08.00 and 10.00 GMT. For SGD, HKD, CNH and THB, market prices are observed at 14.00 Hong Kong Time.
5 The opening price of the position is adjusted by the Forward Price and Financing Interest, at which time unrealised profit/loss is available to view in myAccount.
Rollover Methodology for Saxo retail clients
Normal Forward (price adjustment to the opening price of a position)
|
Amount |
OpenRate |
SpotNow |
Forward Price |
Financing Interest |
New Rate |
|
100,000 |
1.12212923 |
1.05586 |
0.000064 |
0.00000218 |
1.12219541 |
The rollover is applied by:
- Adjusting the opening price of a position to include the Forward Price and Financing Interest components:
- OpenRate + Forward Price + Financing Interest = New Rate
- 1.12212923 + 0.000064 + 0.00000218 = 1.12219541
- No closing rate and no closing position is generated for a swap executed using this method
Historic Swap points
To provide full transparency to clients, Saxo Bank publishes the swap points used for the tom/next rollover on a daily basis.
To view historic swap points for the available currency pairs, please click here. The page allows you to filter the results by desired date and currency.
Forex Rollovers Report
You can view the rollover history on your FX positions in the "Forex Rollovers" report under the Account > Historic reports menu.
Each FX position is recorded in the Forex Rollovers report, which also displays the opening price, swap adjustment, value dates, resulting price and other relevant information.
Intraday FX positions are not subject to rollovers.
Year-end ‘turn’ effect in FX swap points
The ‘turn’ effect is a phenomenon that exists in financial markets which is caused by supply and demand for funding over key dates such as year or quarter-end. This can create anomalies in the forward curves for certain currencies, and we are already beginning to see this priced into the year-end swap points that we receive from our liquidity providers.
Swap points are a key component of the FX Value Date Rollover which is used to adjust the opening price of a position[1], and therefore if you hold a FX spot position over year-end you may bear the cost of paying these inflated swap points[2], when compared to normal market conditions.
Please refer to our website for more information on the FX Value Date Rollover.
[1] Applicable to the default rollover methodology
[2] Depending on the currency pair and your positioning (long/short)
Read more: