Value Dates and Trade Settlement

When we talk about currency trading, we’re implicitly referring to trading the spot forex market. A spot market is one that‘s trading for immediate delivery of whatever security is being traded. But in the real world, immediate means a few business days, to allow banks and financial firms time to settle a trade (make payment, deliver/receive a security).

In forex markets, spot refers to trade settlement in two business days, which is called the value date. That time is needed to allow for trade processing across global time zones and for currency payments to be wired around the world.

The forex market operates on a 24-hour trade date basis beginning at 5 p.m. eastern time (ET) and ending the next day at 5 p.m. ET. So if it’s a Monday, spot currencies are trading for value on Wednesday (assuming no holidays). At 5 p.m. ET on Monday, the trade date becomes Tuesday and the value date is shifted to Thursday. If you have an open position on Monday at 5 p.m. ET closing, your position will be rolled over to the next value date, in this case from Wednesday to Thursday, or a one-day rollover.

If you close your position the next day (Tuesday) and finish the trade date square, there are no rollovers because you have no position. The same is true if you never carry a position through the daily 5 p.m. ET close.

On Wednesday trade dates, spot currencies are normally trading for a Friday value date. At 5 p.m. ET on Wednesday, the value date changes from Friday to Monday, a weekend rollover. In rollover calculations, that’s a three-day rollover (Saturday, Sunday, and Monday), which means the rollover costs/gains are going to be three times as much as any other day.

The one exception to the two-day spot convention in FX are trades in USD/CAD. And that’s because the main financial centers in the United States and Canada share the same time zone, so communications and wire transfers can be made more quickly. USD/CAD trades settle in one business day. The weekend rollover for USD/CAD takes place on Thursday after the 5 p.m. ET close, when the value date shifts from Friday to Monday. This only applies to USD/CAD and not to other pairs involving CAD, such as CAD/JPY or EUR/CAD.

Market Holidays and Value Dates

Value dates are based on individual currency pairs to account for banking holidays in respective countries. Rollover periods can be longer if there is a banking holiday in one of the countries whose currency is part of the trade. For example, if it’s Wednesday and you’re trading GBP/USD, the normal spot value date would be Friday. But if there’s a banking holiday in the United Kingdom on Friday, UK banks are not open to settle the trade. So the value date is shifted to the next valid banking day common to the United Kingdom and the United States, typically the following Monday. In this case, the weekend rollover would take place at the close on Tuesday at 5 p.m. ET, when the value date would change from Thursday to Monday, skipping Friday‘s holiday. That‘s a four-day rollover (Friday, Saturday, Sunday, and Monday).

So what happens at the change in value date at Wednesday’s 5 p.m. ET close? No rollovers in GBP/USD, that’s what. Because the value date for trades made on Wednesday is already Monday, no rollover is needed because trades made on Thursday are also for value on Monday. That’s called a double value date, meaning two trade dates (Wednesday and Thursday) are settling for the same value date (Monday).

A few times each year (mostly around Christmas, New Year's, and Golden Week spring holidays in Japan) when multiple banking holidays in various countries coincide over several days, rollover periods can be as long as seven or eight days. So you may earn or pay rollovers of seven or eight times normal on one day, but then not face any rollovers for the rest of the holiday period.