Tom-next definition

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Tom-next is short for tomorrow-next day, the means by which forex speculators avoid taking physical delivery of currency and are able to keep forex positions open overnight.

Like commodities, forex trades would – if left unchecked – normally result in the trader taking delivery of the asset they have traded. In forex the expected delivery day is two days after any transaction. In order to keep a trade open overnight, forex providers will swap any overnight posiions for an equivalent contract that starts the next day. The price difference between the two contracts is called the tom-next adjustment.

Tom-next is calculated by adjusting the closing level of the open position with the interest rate of the currencies involved. If you are buying a currency with a higher interest rate then you receive an interest payment, if you are buying a currency with a lower interest rate you have to pay interest.

The payment is also known as cost of carry.

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