What Is The Extension In Forex? As a whole wants to master the skill or a career in one of the areas, should everyone wants to become a trader or wants access to the trading and Forex markets world be aware of the various aspects of the foreign exchange market and the laws that govern the basic concepts and terminology used by the participants in this market. In this Step 2 Wealth Review article we will talk about the interest rate on the extension or “roll-over”, which is one of the basic concepts that should be on every trader pairs of foreign currencies to know.
What is the benefit to the extension in the forex market?
Interest on the extension or “rollover” (Rollover Interest) as defined in the foreign exchange markets, the interest rate paid for the Forex trader or deducted from your account when you leave an open position on a particular currency pair after 5:00 pm EST (EST ) of the United States.
The amount will be deducted from the money from the trader’s account or add this amount when you leave an open position on a pair in the forex market, the amount of this amount, according to the state that a trader to buy or sell currency is determined. It is known that trading currencies in the forex market is done by couples, meaning that the currency is determined by comparing the value of another currency interview, and when you buy a currency, you are selling the counter currency in the pair. The benefit, therefore the extension is determined by the difference between the ratios of interest in the two states, which pair consists of their currencies. For example, when you leave an open position on the EUR / USD “EUR / USD” after 5:00 EDT proportion of the benefit extension be the difference between the interest rate applicable in the European Union and the proportion of interest rate applicable in the United States.
In most cases it will be deducted or added benefit extension to the trader’s account automatically by the financial intermediary. The Step 2 Wealth mediators in this process to avoid even traders who are mostly speculators in the short term to do the actual delivery of the currencies of the other counterparty in the deal, a process known as “reconciliation.” It is through the settlement must do rolling physical delivery of the currencies of two days of the deal after the other party. Through the process of extension by the financial intermediaries trader can keep an open Bmrakzh without doing the extradition process, because if he had not been the extension will also need rolling the nominal value of the currency, which has traded on delivery.
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It will be deducted or added benefit of the extension by the total nominal value and not the value of the user in the transaction margin. For example, if a trader purchased the contract of the currency pair “EUR / USD” worth $ 100,000 will be useful extension to the sum of the contract, or $ 100,000 account, not only the margin used in the deal.
We must understand that the benefit extension unrelated charges the use of financial leverage, because many people confuse the benefit extension and fees calculated on the use of the leverage offered by the broker to the trader to increase its ability to trade many times what he had to check in in the account, but the benefit of extension relating to the difference between the ratios interest in force in the countries where the rolling trading currencies.
Pay and deduct the interest on extension
Or pay interest on the extension deduction depends on the currency component currencies for a couple who bought it rolling and states to which they belong and the interest rate applicable in these countries Is it high or not. For example, if the trader buys the currency pair USD / JPY (US dollar against the Japanese yen) it means that he bought the currency the US dollar and selling currency Japanese yen, and the dollar interest 2 percent compared with 0.5% on the Japanese yen, the rolling It will get the benefit of extending the equivalent of 1.5% (on an annual basis). In the case of a trader to sell the currency pair USD / JPY, ie rolling sold the US dollar and buy the yen it will benefit from the extension of his account which is equal to the difference in interest between the two countries, which are equivalent to 1.5% of the expense ratios rolling discount.
Simply put, the interest will be paid if the trader has bought a currency interest rate in the country to which it belongs is greater than the interest rate in the country to which it belongs counter currency in the pair. This interest will be deducted from it in the case was the interest of the coin, which was bought from the lowest interest rates on the counter currency in the pair ratio. And the interest rate in any country is determined by many factors and economic conditions which are constantly changing depending on economic indicators as percentages of growth and inflation rates.
Because most banks in the world close at the end of the week, any Saturday and Sunday, the interest rate on these two days be applied on Wednesday, that is, in the case of the trader to leave the position open on Wednesday after the 5:00 pm EDT, will be deducted or pay additional benefit for day laborers.
The financial intermediaries operations extension automatically, and traders can see a discount or payment operations with immediate effect on a platform of their own trading account for each deal left open after 5:00 ET.
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Take advantage of the extensions
Traders can take advantage of the extension of operations and increase their profits, which included traders interest rates in the criteria to make their decisions for circulation to achieve the greatest possible use. The so some traders to daily (Day traders) to leave their positions open after 5:00 pm Eastern time the United States to take advantage of the benefit extension when buying a currency with a high interest rate compared to the same currency in the pair. The traders also “swing” and investors to buy high interest rate currency only to take advantage of the benefit extension.
In addition, the trader can in case it is expected that the price of a currency will not move in the direction that he wants and will remain fluctuate accidentally during this year, you can take advantage of the interest rate differential between the currencies of the pair. For example, if the investor has purchased a pair EUR / JPY (euro against the yen) and is expected to end the year at the same level, will be able to make a profit through the use of financial leverage, usefulness to extend the equivalent of 2% will result in a gain of 20% if the lever used financial equal to 10: 1. This may also cause a loss to the Forex trader if he bought the currency low utility ratio means it will lose 2% or 20% in the case of the use of financial leverage.