Tomorrow Next (Tom Next) is a powerful forex (foreign exchange) transaction mechanism designed for traders looking to simultaneously buy and sell currencies over two distinct business days. This strategy helps traders maintain their market positions without taking physical delivery of the currencies.
Key Takeaways
- Postpone Delivery, Extend Your Position: Tomorrow Next allows forex traders to roll over their positions, deferring the need for physical currency delivery while holding their market stance.
- Seamless Trades Across Business Days: Execute FX swaps over two business days with ease, where the initial transaction occurs ’tomorrow’ (one business day out) and the subsequent one ’next’ (two business days out).
- Broker-Assisted Strategy: Available through brokers’ forex or STIR desks, a tom next transaction ensures flexibility without forfeiting trading opportunities.
How Tomorrow Next (Tom Next) Works
The forex market, renowned for its unparalleled liquidity and vast scope, sees over $7.5 trillion in daily trades. Operating around the clock five days a week, it attracts all levels of trading proficiency. Tom Next transactions come into play to simplify maintaining positions without mandatory currency deliveries.
Typically, forex trades end with the delivery of the traded currencies. However, by engaging in a Tom Next operation, traders push their position beyond the typical T+2 (spot date) window, settling into tomorrow and the next day. This method is beneficial for those looking to avoid physical currency handling and retain trading positions unchanged overnight.
Once Tomorrow Next Is Pushed
Traders executing Tom Next transactions are generally through the broker’s FX or short-term interest rate desks. This enables them to complete a swap—simultaneously buying and selling the currency pair over the subsequent two days without taking actual possession.
Special Considerations
Depending on the nature of the held currency pair, traders might experience a charge or benefit given the interest rate differentials—a factor known as the cost of carry. Managed mainly in the interbank market, tom next trades offer favorable outcomes for high-yielding currency positions.
A striking consideration for proprietary futures and commodities trades also includes a form of tom-next transactions, although less frequently cited. Here, avoiding physical commodity delivery by transactional extensions represents a key preferable strategy element for commodity-specific traders.
Example: Tomorrow Next (Tom Next)
Let’s illustrate: Say a trader holds a long position on the EUR/USD pair, trading at $1.53 (1 euro buys 1.53 USD). When nearing expiration, they issue a tom next instruction. With swap interest rates considered globally (0.010 to 0.015), they finish the day with a 0.010 rate, adjusting their new trade price to $1.52 the next trading day—thus ensuring continuous holdings, postponed settlement.
FAQ: Tomorrow Next Trade
What Is a Tomorrow Next Trade? A Tomorrow Next trade helps forex traders roll over positions to the subsequent trading days, thereby eliminating the need for immediate currency delivery and providing strategy extension avenues.
What Are Some Risks Involved? Currency trading carries various risks including economic, liquidity, and fluctuations due to geopolitical and exchange rate uncertainties.
Is Currency Trading Beginner-Friendly? Beginners should tread carefully in forex markets. Understand currency pairs, manage inherent risks prudently, and combine theoretical acumen with practical awareness for successful trades.
What Do T+1, T+2, and T+3 Mean? These denote settlement equidistancy relative to key transactional timelines: T+1 (one day post-transaction), T+2 (two days), and T+3 respectively, beneficial for different market-close strategies.
The Bottom Line
While most financial instrument trades conclude with asset delivery, the forex market’s nature often necessitates avoiding direct currency settlements. Via the tom next mechanism, traders can extend their entire position seamlessly over an additional day, unencumbered by currency possession constraints—facilitating tactical advantages beyond traditional settlement provisions.
Related Terms: FX swap, currency pairs, T+2, rollover, cost of carry.
