Tomorrow Next - Tom Next

Most of the time, when people trade foreign currencies, they don’t really want the actual currency...they just want the profits from the trades. In other words, they don’t want to take physical delivery of the asset. This is where the “tomorrow next,” or “tom next,” concept comes into play.

A “tom next” transaction is basically a rolling extension of short-term currency trades designed so that the investor never has to take actual delivery of that foreign currency. It’s one transaction split into two parts—the “buy” part and the “sell” part—that happen on two concurrent days: tomorrow…and the next day. Get it? Tomorrow and the next day? Tomorrow next? Tom next? So clever.

Anyway, the standard modus operandi in the currency trading world is that we buy or sell, and then, two days later, the delivery of said currency is supposed to happen. The tom next process allows investors to circumvent the whole inconvenient physical delivery thing by selling the currency the day before it’s due to be delivered. And not once, but like...over and over and over. So, every day, we’re selling what we bought yesterday and buying more to sell tomorrow.

We also see tom nexts a lot in other commodity trades, because while most investors may not want to take physical delivery of a bunch of foreign money, they most definitely don’t want to take physical delivery of a shipping crate full of soybeans.

Is there a cost to all this extending and buying and selling and rolling over? Of course there is, but that doesn’t mean we can’t make money. We just need to pay extra close attention to the exchange rates, fees, and carry costs that we’re dealing with.