Tomorrow Next

Tomorrow Next (Tom-Next) is a financial term used in trading and investment markets. It refers to a type of swap transaction that allows investors to roll over their positions from the current trading day to the next trading day.

In the context of foreign exchange (forex) trading, Tom-Next is commonly used to extend the settlement date for spot currency trades. In spot forex transactions, the exchange of currencies typically occurs two business days after the trade date. However, with Tom-Next, traders have the option to extend the settlement date to the next business day.

The Tom-Next swap is primarily used by traders who wish to avoid the physical delivery of the underlying currency. By rolling over their positions, they can maintain their exposure to a specific currency pair without having to settle the trade in the spot market.

The Tom-Next swap involves simultaneously closing the existing spot position and opening a new position for the next trading day. The swap rate applied to the transaction is based on the interest rate differential between the two currencies in the pair. If the interest rate of the currency being bought is higher than that of the currency being sold, the trader may receive a credit (positive swap). Conversely, if the interest rate of the sold currency is higher, the trader may incur a cost (negative swap).

The Tom-Next swap allows traders to take advantage of interest rate differentials between currencies and potentially earn or pay overnight financing costs. It is important to note that the swap rates can vary depending on market conditions, including changes in central bank interest rates and market sentiment.

Overall, Tomorrow Next (Tom-Next) is a swap transaction used in financial markets, particularly in forex trading, to extend the settlement date for spot currency trades. It enables traders to roll over their positions to the next trading day while taking into account the interest rate differentials between the involved currencies.