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Tomorrow Next (Tom Next)

Posted on October 19, 2025October 20, 2025 by user

Tomorrow Next (Tom Next) in Forex — Definition and Purpose

Tomorrow next, often written tom next, is a short-term foreign exchange transaction that lets traders extend a position for one business day without taking physical delivery of the currency. It is effectively a one-day rollover: the trader simultaneously enters offsetting trades that move settlement from tomorrow (tom) to the following business day (next). Tom next transactions are a simple form of an FX swap used to manage overnight exposures and avoid settlement obligations.

How Tom Next Works

  • Market context: Spot FX trades normally settle after a standard lag (commonly T+2). If a trader would otherwise face settlement the next business day but wants to keep the position open, they can roll it using a tom next.
  • Mechanics: The trader (through a broker or interbank dealer) executes two opposite transactions:
  • A near leg that unwinds the position for settlement tomorrow.
  • A far leg that reestablishes the position for settlement the following day.
    These legs are negotiated simultaneously so the net effect is to shift the settlement date forward by one business day.
  • Pricing: The tom next price reflects the spot rate adjusted by the swap points derived from the interest rate differential between the two currencies (the cost of carry). If the currencies have identical interest rates, swap adjustment is effectively zero.
  • Execution: Tom next trades are typically handled by forwards or short-term interest rate (STIR) desks at banks and brokerages.

Cost and Interest Treatment

  • Cost of carry: The interest rate differential between the two currencies determines whether the trader pays or receives a rollover premium. Holding a high-yield currency generally earns a more favorable rollover; holding a low-yield currency usually incurs a cost.
  • Settlement and liquidity: Tom-next is commonly used in liquid currency pairs; execution in less liquid markets may widen spreads or increase counterparty risk.

Practical Example (Hypothetical)

A trader is long EUR/USD and wants to avoid taking physical delivery tomorrow. Instead of settling, they instruct a tom next rollover. Suppose the quoted swap adjustment for the pair for the tom/next period reduces the effective rate by a small amount (for illustration, 0.001). If the spot was 1.5300, the rolled position might reflect an adjusted rate around 1.5290–1.5299 depending on the exact swap points and dealer pricing. The trader’s position is now extended one additional business day without settlement.

Risks and Considerations

  • Market risk: Exchange-rate moves while the position is open can produce gains or losses.
  • Liquidity risk: Wider spreads or reduced liquidity can make rollovers more expensive or harder to execute.
  • Counterparty risk: Tom next involves bilateral execution; counterparty creditworthiness matters.
  • Operational/transaction risk: Incorrect instructions or timing across time zones can cause unintended settlement.
  • Macro/geopolitical risk: Events affecting interest rates or currency fundamentals can change rollover costs and outcomes.

Related Terms

  • T+1, T+2, T+3: Settlement conventions where “T” is the transaction date and the number indicates business days until settlement. For example, T+2 settles two business days after the trade.

Key Takeaways

  • Tom next is a one-business-day rollover that moves settlement from tomorrow to the next business day without taking delivery.
  • It is implemented as a near- and far-leg FX swap and priced using interest-rate differentials between the currencies.
  • Traders use tom next to manage overnight exposure, avoid physical settlement, and maintain position flexibility.
  • Costs, liquidity, and counterparty considerations should be evaluated before rolling positions.

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