What it means
In currency trading, most deals settle two business days after the trade date, known as the spot date. If a trader or company does not want to settle on that day, it can roll the position to the next business day with a spot next swap.
A swap here means two opposite deals at once. The trader closes the position for the spot date and simultaneously reopens the same position for the following business day, so the exposure continues but the settlement is postponed.
The cost or gain of rolling is driven by the difference in interest rates between the two currencies. If you hold the currency with the higher interest rate, you may earn a small amount for each day you roll, and if you hold the one with the lower rate, you may pay.
Banks quote the adjustment in swap points, which are small fractions of the exchange rate, often measured in pips. A pip is the smallest standard unit in most currency quotes, usually the fourth decimal place.
Rolling a large position over a weekend or holiday can involve several days of interest at once. Corporate treasurers use spot next to deal with timing mismatches.
If a supplier payment is delayed by a day or an incoming receipt arrives late, a spot next swap bridges the gap without leaving the company with an unwanted open position. The cost is usually small, and it is known in advance when the swap is agreed.
Spot next is related to tom next, short for tomorrow next, which rolls a position from tomorrow to the following day. Both are very short-dated swaps that make up the overnight end of the currency funding market.
In practice
Real-world examples.
Example
A company expects 2,000,000 euros from a customer but the payment is delayed by a day. The treasurer uses a spot next swap to move her currency settlement to the next business day, avoiding an overdraft.
Example
A bank trader holding a large currency position wants to keep it open through the next day. He rolls the position with spot next each day, paying or earning small swap points each time.
Example
An importer's supplier agrees to take payment one day later than planned. The finance team rolls the currency purchase by a day using a spot next swap, rather than cancelling and re-dealing at a new rate. This keeps the original exchange rate on the purchase and adds only the small swap cost.
Formula
Calculation
Cost or gain of one roll = position size x swap points
A company holds a position of 1,000,000 euros that it needs to roll by one business day. The spot next swap points are 0.5 pips, or 0.00005 in the exchange rate. Cost or gain = 1,000,000 x 0.00005 = $50 for the day. Depending on the interest rate difference, this amount is either paid or received, and over a three-day weekend roll the figure would be roughly three times larger.Case study
Seen in the real world.
Ironbridge Trading is an illustrative, fictional company that sells machinery in Europe and invoices in euros. One Thursday it expected 1,500,000 euros from a customer that was due to settle on Friday, but the customer's bank warned that the payment would be delayed.
The company already had a sale of euros for dollars settling on Friday to fund its own payroll. Rather than cancel the trade and take whatever rate was available, the treasurer arranged a spot next swap that moved the settlement to the next business day, Monday, at a cost of about $225.
The money arrived on Monday, the payroll was funded through a short overdraft, and no currency exposure was left open. The illustrative lesson is that a small swap cost was cheaper than the alternative of a forced trade at a worse rate. The treasurer also wrote the steps into the department procedures, including who may authorise a roll and the cut-off time for dealing.
Watch out
Common mistakes.
- Confusing spot next with an ordinary spot trade, when it is a swap that moves an existing position by a day.
- Ignoring the swap points because they look tiny, when on large positions held for many days they add up.
- Assuming the roll always costs money, when it can also earn a small amount depending on the interest rate difference.
Questions
People also ask.
What is the difference between spot next and tom next?
Tom next rolls a position from tomorrow to the spot date, whereas spot next rolls it from the spot date to the following business day.
Who uses spot next?
Banks, traders and corporate treasury teams use it when they need to move a currency settlement by a day to fix timing problems.
Are swap points the same as a fee?
Not exactly, as they mainly reflect the interest rate difference between the two currencies, though the bank also builds in a small margin.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related