How rollover is calculated for Pair Specific Leverage

Direct answer

Rollover for Pair Specific Leverage is typically calculated from an interest-rate differential between the two currencies in the pair, then adjusted by position direction (long vs short), rollover timing, and a provider convention for “extra” rollover on certain days (often described as a triple-swap). The exact numbers you see can differ from a textbook calculation due to provider-specific adjustments and rounding.

Mechanics: the moving parts behind rollover

Pair Specific Leverage is a way a provider ties leverage rules to a specific currency pair. Rollover itself, however, is usually not “leverage-based” in the sense of being computed directly from the leverage ratio. Instead, rollover is generally an interest-related adjustment for holding a position overnight.

To understand the calculation model, separate stable mechanics from variable conditions:

1. Interest-rate inputs (stable concept): For a currency pair, one side of the trade is exposed to the interest rate of the base currency and the other side to the interest rate of the quote currency. Rollover depends on the difference between these rates.

2. Position direction (stable concept): If you hold a long position in the pair, the “pay/receive” logic is different than for a short position. A common framework is: you pay the interest on the side you are effectively borrowing, and you receive the interest on the side you are effectively lending.

3. Tenor and rollover timing (stable concept): Rollover is applied at specific daily cut-off times and can be represented in terms of an overnight period. If the provider applies rollover at a different time than your charting cut-off, the “day” you think you held can differ from the provider’s roll date.

4. Triple-swap convention (variable by provider, but conceptually stable): Around certain weekdays (commonly associated with weekend handling), some providers apply an extra rollover amount, often described as charging or crediting three days instead of one.

Example model (with explicit assumptions)

Below is an educational model you can use to explain the concept. Real provider formulas vary, so treat this as a checkable structure, not a promise of exact results.

Assumptions:

• You hold an open position overnight.
• The provider uses an interest-rate differential model.
• A “triple-swap” occurs on a specific rollover date.

Step 1: Determine the interest differential

• Let the annual interest rate for currency A be (r_A).
• Let the annual interest rate for currency B be (r_B).
• Compute the differential (\Delta r = r_A - r_B) (the sign ultimately depends on whether your trade is long or short and which currency you effectively borrow).

Step 2: Convert annual rate to an overnight (or daily) amount

• Choose a day-count basis (some models use a 360- or 365-day convention; providers may differ).
• Compute a daily factor (d = 1/\text{day_count}).
• Daily interest differential is approximately (\Delta r \times d).

Step 3: Apply to the position’s notional

• Let the position notional be (N) in the currency basis the provider uses.
• A daily interest amount is approximately (N \times (\Delta r \times d)).

Step 4: Apply direction and weekend rule

• If your position direction implies you receive interest on the differential, you add; otherwise you subtract.
• If the rollover date triggers triple-swap, multiply the daily interest amount by 3 (instead of 1), again depending on the provider’s convention.

What can differ from what you see: even with the same conceptual structure, providers can apply additional adjustments, and they may round intermediate values.

Limitations and failure modes (what can break the simple explanation)

1. Provider-specific adjustments: The conceptual differential model may be modified by the provider’s internal rules (for example, how they map quoted rates to tradable execution conditions).

2. Day-count and timing mismatches: If you assume one day-count convention but the provider uses another, or if you hold across a cut-off time differently than expected, the resulting rollover can differ.

3. Triple-swap is a convention, not a universal law: “Triple-swap” may happen on different dates or be implemented differently depending on provider and operational calendars.

4. Costs, rounding, and currency conversion: Even if the sign and magnitude are broadly consistent, rounding rules and the conversion between currencies can change the displayed amount.