What is tom-next?
Tom-next is short for ‘tomorrow-next day’, which is the process of rolling a FX position from one spot day to the next. This is also known as the ‘cost of carry’ or the ‘financing adjustments’ associated with trading spot FX.
Instead of accepting delivery of the currency they have traded, the tom-next adjustment enables the position to be rolled over to the next day based on a specific tom-next rate.
Tom-next rates are derived from the cost required to borrow overnight the currency that is being notionally sold less any interest earned from depositing overnight the currency that is being notionally bought, market forces and expectations are also able to influence this rate.
