Tom Next

Tom-Next, also known as T/N, is a term used in the foreign exchange market to refer to the process of rolling over an open position to the next business day. It is commonly referred to as a swap transaction.

The Tom-Next transaction is based on the calculation of the interest rate differential for the currency pair involved. The interest rate differential between two currencies determines the cost or income associated with rolling over a position to the next business day.

For example, if an investor holds a long position in the EUR/USD currency pair (buying EUR and selling USD), the position will need to be rolled over to the next business day. In this case, the investor will incur or earn a swap cost or income based on the interest rate of the EUR and USD.

The Tom-Next transaction typically occurs at 17:00 and is associated with the value date of the next business day. It allows for the continuous rolling over of open positions in the foreign exchange market and provides liquidity to market participants.

The Tom-Next transaction can be utilized as part of the carry trade strategy, which aims to profit from interest rate differentials in the forex market. Carry trade involves borrowing a currency with a low-interest rate and investing in a currency with a higher interest rate.

However, it’s important to note that the Tom-Next transaction does not always result in a cost or income. Changes in interest rates and other factors in the forex market can impact the outcome of this transaction. Therefore, investors should exercise caution and evaluate the risks involved when engaging in Tom-Next transactions.