# Tomorrow Next in Forex: Definition, Purpose, and How It Works

> **Definition**
>
> Tomorrow next is a short-term foreign exchange transaction that allows traders to avoid taking physical delivery of a currency by simultaneously buying and selling it over two business days.

## What Does Tomorrow Next (Tom Next) Mean?

In forex trading, tomorrow next (tom next) refers to a short-term transaction that moves the settlement of a trade from the next business day (tomorrow) to the following day (next). This lets traders extend their positions without taking actual delivery of the currency. Tom next is commonly used in the highly liquid [forex](https://www.investopedia.com/terms/f/foreign-exchange.asp) market to manage short-term exposures or roll over positions. Tom/Next transactions are closely related to FX swaps, helping traders adjust settlement dates efficiently while maintaining flexibility in their trading strategies.

### Key Takeaways

*   Tomorrow next (tom next) transactions let traders maintain forex positions without completing currency delivery.  
    
*   These transactions involve buying and selling a currency over two business days, starting tomorrow.  
    
*   Tom next helps traders avoid taking physical delivery, keeping positions open overnight.  
    
*   Traders can earn or pay a premium based on interest rate differentials of the currencies exchanged.  
    
*   Tom next transactions are executed by brokers and typically managed by forex or short-term interest rate desks.

## Understanding the Mechanics of Tomorrow Next (Tom Next) Transactions

The currency or foreign exchange market is the largest and most [liquid](https://www.investopedia.com/terms/l/liquidity.asp) market in the world with $7.5 trillion in over-the-counter daily trades in April 2022. The market is open 24 hours a day, five days a week. It is a complex market that requires a great deal of expertise and knowledge to avoid risk and taking large losses. The goal of trading in this market is to buy [currencies](https://www.investopedia.com/terms/c/currency.asp) at low prices and sell them when the value rises to generate a profit.

In most markets, trades end with the investor taking [delivery](https://www.investopedia.com/terms/d/delivery.asp) of the financial asset in question. Forex trades result in physical or electronic delivery of the currency. The delivery date for currencies is typically two days or T+2 after a trade order is placed. This is referred to as the [spot date](https://www.investopedia.com/terms/s/spot-date.asp). A trader can extend the trade past this date, which is referred to as tomorrow next.

By using tom next, traders can keep positions open overnight and avoid taking delivery of the currency. This lets them do an [FX swap](https://www.investopedia.com/terms/f/foreign-currency-swaps.asp), buying and selling the currency over two business days. In this case, the first day is tomorrow and the second is the day after that.

If traders don't roll over, they must take delivery of the currency, which rarely happens. Thus, tom-next lets traders extend their position.  

> **Tip**
>
> If the two currencies have identical interest rates then they will be swapped at the same rate. 

## Key Considerations for Tomorrow Next (Tom Next) Trades

Depending on the currency, traders may be charged or earn a premium. Those with high-yield currencies get a better rollover rate due to interest differences. This differential is known as the [cost of carry](https://www.investopedia.com/terms/c/costofcarry.asp). 

Interbank dealers execute tom-next trades. Traders buy or sell currencies based on their transaction direction. A tom-next transaction is usually managed by the forwards trading desk or the [STIR](https://www.investopedia.com/terms/s/stir.asp) team.  

> **Important**
>
> Tomorrow next is also used in commodities derivatives, though rarely called that. Rolling positions is crucial in commodities; without it, traders must take delivery at expiration.

## Applying Tomorrow Next (Tom Next): A Practical Example 

Here's a hypothetical example to show how the idea of tomorrow next works. Let's say that a trader is long on the [EUR/USD](https://www.investopedia.com/terms/forex/e/eur-usd-euro-us-dollar-currency-pair.asp) pair, which trades at $1.53 (1 euro buys 1.53 U.S. dollars) on its expiration date. The trader issues a tom next instruction to continue holding onto the pair. Suppose the swap interest rates for the pair are in the range of 0.010 to 0.015.

At the end of the trading day, after the purchase and sale of shares, the trader is offered an interest rate of 0.010. The new price of the trader's position becomes $1.52 the following day.

## What Is a Tomorrow Next Trade?

Tomorrow next is a term used in the currency or forex markets. It allows traders to postpone delivery by rolling over their position in the market two business days later. By doing so, traders can simultaneously avoid taking delivery and holding the currency. Put simply, it allows traders to extend the settlement of a currency trade by one more day.

## What Are Some of the Risks Involved with Currency Trading?

Risk is inherent in any type of trading. Some of the risks associated with trading currencies include economic, liquidity, and exchange rate risks. Geopolitical issues, counterparty risks, and transaction risk can also affect currency rates.

## Is Currency Trading Good for Beginners?

Foreign exchange can be complicated because it requires a good working knowledge of how currency markets work. Experience and skills are also key as they can help traders navigate some of the intricacies of this market and avoid major losses. Investors need to understand currency pairs, risks involved, and how to balance the risks in the market with the potential for rewards.

## What Do T+1, T+2, and T+3 Mean?

[T+1, T+2. T+3](https://www.investopedia.com/terms/t/tplus1.asp) are abbreviations commonly used to denote settlement dates for certain financial transactions. The T indicates the transaction date, while the numbers refer to how many days it takes after the transaction to settle. So a T+1 transaction settles one business day after the transaction date while a T+2 and T+3 settle two and three business days later, respectively. If a transaction takes place on a Wednesday, the T+1 settlement date occurs on Thursday. A T+2 transaction initiated on a Friday settles on Tuesday since Saturday and Sunday aren't business days.

## The Bottom Line

Tomorrow next (tom next) refers to a short-term transaction that moves the settlement of a trade from the next business day to the following day. Traders can use this to extend their positions without taking actual delivery of the currency. It’s commonly used to manage short-term forex exposures or roll over positions. Tom next transactions are closely related to FX swaps, helping traders adjust settlement dates efficiently while maintaining flexibility in their trading strategies.

> **Article Sources**
>
> 1.  BIS. "[OTC foreign exchange turnover in April 2022](https://www.bis.org/statistics/rpfx22_fx.htm)."