Trading Basics: Tom-next
Beginners may find trading terminologies and lingo perplexing or intimidating. This includes “tom-next,” a currency trading phrase. We’ll define tom-next and its importance in trading in this post.
How is Tom-next?
Tom-next, short for “tomorrow-next day,” is a currency trading term for the interest rate difference between two currencies. Rolling positions over from one trading day to the next costs money. Tom-next lets traders calculate overnight position costs and benefits.
The tom-next rate depends on currency interest rates, market demand, and liquidity. To compute overnight swap costs or profits, you must grasp the tom-next rate.
Calculating Tom-next
Beginners may find tom-next rate calculation difficult. The interest rate difference, broker fees, and market circumstances are considered. To ease this procedure, many trading systems and brokers calculate the tom-next rate for each currency pair automatically.
At the conclusion of the trading day, rollover calculates and applies the tom-next rate. Rollover extends the settlement date of an open trade to the following trading day to prevent asset delivery.
The Trading Importance of Tom-next
Traders, particularly overnight holders, must understand tom-next. Tom-next rates affect the profitability or expense of holding holdings overnight. When the tom-next rate is positive, traders get credit for rolling over their positions. Traders pay if the tom-next rate is negative.
Tom-next pricing vary depending on market and economic circumstances. Interest rate fluctuations, central bank pronouncements, and other items that might affect future rates must be monitored by traders.
Conclusion
Currency traders must consider tom-next while deciding whether to maintain holdings overnight. Knowing tom-next rates and their relevance helps traders make judgments and minimize risk. For simplicity, novices should use trading platforms or brokers that calculate tom-next rates automatically.
References and sources:
“Tom/Next (Rollover) Definition”. Investopedia.
The Basics of Currency Trading”. Investopedia.
“Currency Rollover (Swap)”. FXCM.