Tomorrow's next , often abbreviated as Tom/Next, is a financial term used in currency trading to refer to the spread of open positions from one working day to the next. Exhibition period.
is also known as "Rollover Interest" or "Exchange Point".
Let’s explore what Tomorrow’s Next means, why it’s important, and how it’s used in Forex trading.
What’s next (Tom-Next) tomorrow?
Tomorrow Next, or Tom-Next, is a short-term foreign exchange transaction that involves simultaneously buying and selling a currency pair on two different value dates.
If you buy something, it will be shipped the next day (tomorrow), and if you sell something, it will be shipped the next day (the next day).
When traders hold a position on a currency pair overnight, they are subject to roll, which means the position is automatically closed and reopened at the end of the trading day.
Rollover involves buying and selling the same currency pair at the same time, with the settlement date being the next business day.
The cost of rollover is determined by the interest rate difference between the two currencies in the currency pair. If the interest rate of the currency purchased is higher than
The interest rate on the currency sold, the trader will receive a credit in the rollover, if the interest rate on the currency sold is higher, the trader will pay a debit.
Tomorrow's next is a term used to describe the rate of performing a flip.
represents the difference between the spot rate and the forward rate for the next business day.
Forward rates are calculated using spreads and adjusted for any market expectations or risk factors that may affect the currency pair.
Why is tomorrow important?
Tomorrow Next plays a vital role in Forex trading and here’s why:
- Rollover: Tom-Next trading allows traders to maintain their forex positions for more than one day without actually exchanging currencies. This is particularly useful for speculative traders who have no interest in taking delivery of the currency but wish to profit from its price movements.
- Interest Rate Difference: When rolling a forex position, traders need to consider the interest rate difference between the two currencies involved. Tom-Next trading takes these differences into account, ensuring traders do not miss out on potential interest income or incur additional costs when holding positions overnight.
- Liquidity: Next Trade Tomorrow promotes liquidity in the FX market by allowing traders to roll over, reducing the need for physical delivery and currency settlement.
How to use it in Forex trading tomorrow?
Tom-Next trading is used by Forex traders via:
- Rollover Process: When traders wish to keep open positions after the settlement date, they can use Tom-Next trading to roll over the position to the next day. The trader simultaneously sells the currency pair for delivery the next day and buys it back the next day, effectively extending the settlement date of the position.
- Swap Rates: Forex brokers usually offer rollover rates or swap rates based on the interest rate difference between the two currencies in a currency pair. These rates are affected by Tom-Next trades because brokers use them to hedge clients' rollover positions in the interbank market.
- Arbitrage Trade: In a carry trade strategy, a trader borrows a currency with a low interest rate to fund the purchase of a currency with a high interest rate. Tom-Next trading helps facilitate arbitrage trades by allowing traders to roll over positions and benefit from interest rate differentials.
Summary
Anyway, Tomorrow Next is a financial term used in currency trading to refer to the rollover of an open position from one business day to the next.
This is an important consideration for traders who hold positions overnight as it affects the profitability of the trade
If you want to learn more foreign exchange trading knowledge, please click: Trading Education.
