Tomorrow Next (Tom Next) Forex Trading Explained: 2025 Guide & Costs

Gordon Scott brings over 20 years of experience as an investor and Chartered Market Technician (CMT), specializing in technical analysis.

What Is Tomorrow Next (Tom Next) in Forex Trading?

Tomorrow Next, often abbreviated as Tom Next, is a short-term foreign exchange (forex) transaction enabling traders to roll over currency positions by simultaneously buying and selling the same currency pair across two consecutive business days. This process helps traders avoid taking physical delivery of the currency while maintaining their market exposure.

Key Highlights

• Tom Next refers to extending a forex position by rolling it over from tomorrow (T+1) to the next day (T+2).
• It allows traders to keep positions open overnight without settling the currency physically.
• Executed typically through brokers’ forex or short-term interest rate (STIR) desks.

How Does Tomorrow Next Work in Currency Markets?

The global forex market is the largest financial market, with daily trading volumes exceeding $7.5 trillion as of April 2022. Operating 24/5, it requires skill and knowledge to manage risks effectively. Normally, forex trades settle in two business days (T+2), meaning the currency is delivered physically or electronically after this period.

By using Tom Next, traders roll over their positions to avoid settlement, effectively conducting an FX swap. The first leg settles tomorrow, and the second leg settles the day after, allowing continuous exposure without taking delivery.

Practical Insight

If both currencies involved have similar interest rates, the swap is typically executed at the same rate, minimizing costs.

Important Factors and Costs in Tom Next Trades

Interest rate differentials between currencies influence the cost or gain from rolling over positions, known as the cost of carry. Traders holding higher-yield currencies may benefit from favorable rollover rates.

Tom Next transactions are handled by interbank dealers or specialized trading desks, depending on the currency pair and trade direction.

Additional Uses

While predominantly used in forex, the rollover concept applies in commodities derivatives markets to avoid physical delivery at contract expiration.

Example of a Tomorrow Next Transaction

Consider a trader long on EUR/USD at an exchange rate of 1.53 USD per euro on the contract’s expiration date. The trader opts to roll over the position using Tom Next. If the swap interest rate offered is around 0.010, the effective price adjusts slightly, for example, to 1.52 USD the next day, reflecting the rollover cost.

Understanding Settlement Terms: T+1, T+2, T+3

Settlement terms indicate how many business days after the trade date (T) the transaction settles. For example, T+1 means one business day later, T+2 two days later, and so forth. Weekends and holidays are excluded from these counts.

Risks and Considerations in Currency Trading

Forex trading carries risks including economic fluctuations, liquidity challenges, exchange rate volatility, geopolitical tensions, and counterparty risks. Adequate knowledge and risk management strategies are essential, especially for beginners.

Is Forex Trading Suitable for Beginners?

Due to its complexity and volatility, forex trading requires a solid understanding of market mechanics, currency pairs, and risk management. Beginners should acquire education and experience before engaging actively.

Conclusion: Why Use Tomorrow Next in Forex?

Most financial trades conclude with asset delivery, but in forex, traders often prefer to avoid physical settlement. The Tomorrow Next strategy allows them to extend positions seamlessly by rolling over trades, facilitating continuous exposure without taking possession of the currency. This approach is essential for active forex traders looking to manage positions efficiently in 2024.

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