Table of Contents
- What Tomorrow Next (Tom Next) Means
- Key Takeaways on Tomorrow Next
- How Tomorrow Next (Tom Next) Works
- A Quick Tip on Swaps
- Special Considerations for Tom Next
- An Important Note on Broader Use
- Example of Tomorrow Next (Tom Next)
- What Is a Tomorrow Next Trade?
- Risks Involved with Currency Trading
- Is Currency Trading Good for Beginners?
- What Do T+1, T+2, and T+3 Mean?
- The Bottom Line
What Tomorrow Next (Tom Next) Means
I'm here to explain tomorrow next, or tom next, which is a short-term foreign exchange transaction. You simultaneously buy and sell a currency over two separate business days. The first day is tomorrow, one business day away, and the next is the day after, two business days from today. This lets you as a trader or investor keep your position open without having to take physical delivery of the currency.
Key Takeaways on Tomorrow Next
Tomorrow next is about rolling over your position in the currency markets to delay delivery. You can extend it to the next business day and the one after that, avoiding delivery while still holding the currency. Execute this through your broker's forex or short-term interest rate desk.
How Tomorrow Next (Tom Next) Works
The foreign exchange market is the biggest and most liquid out there, with $7.5 trillion in daily over-the-counter trades as of April 2022. It runs 24 hours a day, five days a week. Trading here demands expertise to manage risks and avoid big losses. Your aim is to buy currencies low and sell high for profit.
In most markets, trades conclude with you taking delivery of the asset. For forex, that means physical or electronic delivery of the currency, usually on the spot date, which is T+2, two days after the trade. You can push this out using tomorrow next.
By rolling to tom next, you keep positions open overnight without delivery. This sets up an FX swap where you buy and sell the currency over two days—tomorrow and the next. If you don't roll, you're stuck taking delivery, which traders rarely want. So tom next essentially extends your position.
A Quick Tip on Swaps
If the two currencies have the same interest rates, you'll swap them at the same rate.
Special Considerations for Tom Next
Depending on your currency, you might earn or pay a premium when rolling over. If you're holding a high-yielding currency, you get a better rate due to the interest rate differential, called the cost of carry.
These trades happen in the interbank market via dealers. You either buy then sell or sell then buy the currency you're rolling. It's typically managed by the forwards desk or short-term interest rate team.
An Important Note on Broader Use
Tomorrow next also applies in commodities derivatives, though the term isn't common there. Rolling over is crucial in commodities because failing to do so means taking delivery of the actual commodity at expiration.
Example of Tomorrow Next (Tom Next)
Consider this hypothetical: You're long on EUR/USD at $1.53 on expiration. You instruct a tom next to hold the pair. Swap rates are 0.010 to 0.015. At day's end, after the buy and sell, you get 0.010, and your position adjusts to $1.52 the next day.
What Is a Tomorrow Next Trade?
Tomorrow next is a forex term for postponing delivery by rolling your position two business days ahead. You avoid delivery and keep holding the currency—it's basically extending settlement by a day.
Risks Involved with Currency Trading
Trading always has risks. In currencies, watch for economic, liquidity, and exchange rate risks. Geopolitical events, counterparty issues, and transaction risks can impact rates too.
Is Currency Trading Good for Beginners?
Forex is complex and needs solid knowledge of markets. Experience helps you handle intricacies, avoid losses, understand pairs, balance risks, and weigh rewards.
What Do T+1, T+2, and T+3 Mean?
These denote settlement dates: T is the transaction day, plus the number of business days to settle. T+1 is one day after, T+2 two days, T+3 three. For example, a Wednesday trade at T+2 settles Friday; a Friday T+2 settles Tuesday, skipping weekends.
The Bottom Line
Most trades end in delivery, but in forex, you often want to avoid that. Use tomorrow next to skip possession and extend your position via an FX swap, buying and selling simultaneously. Without it, you might have to accept the currency.
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