In London, a variety of spot forex deals are being traded. A majority of spot deals uses the Dollar as one of the currency pairs. Spot deal refers to a forex-related transaction that occurs on the today’s rate, and the delivery time is set to two business days. If the transaction has taken placed on the Monday, then the currency will be sold or bought on the Wednesday.
In London, the forex business day ends on 21:59. At that time, all the opened business transactions are rolled over for the next day. In the forex business, a majority of the transactions is speculative and hence doesn’t consider any commercial underlying basis. To avoid receiving the transactions in any currency, the trader will ask a broker to roll over his open position. A majority of the brokers does this automatically on their behalf.
In simple words, a rollover transaction is the one which is continued on the next day as well. If the position of the trader is very highly leveraged than it might not be possible for him to deliver the same currency. This usually happens when the trader is out of capital, or he wishes to keep the open position.
At the time of rolling over the transaction by the forex broker, the interest which is charged is the actual difference between the two rollover currencies. At the end of a day, the broker will close out your position and will reopen it in the next business day. When the position is reopened, it will take the difference between the last day position and the current position. This difference in the exchange rate shows the difference in the position of the British Pound and the US dollar. If you hold a long position on a currency that has higher overnight interest value as compare to the short position, then you will earn the number of pips that shows the interest rate difference. In the opposite scenario, if you try to short the position having high overnight position, then you are likely to lose the pips.