What Does It Mean to Roll a Futures Contract

Let`s say it`s may and you see a great trading opportunity in the ES futures contract (S&P-500). To decide which contract to buy, here`s what you need to know: Quadruple witching is similar to triple witching, except that in addition to the three asset classes expiring, single stock futures also expire on the same day. It also takes place four times a year in March, June, September and December on the third Friday of the month. Currency futures are usually postponed when the maturity date becomes the deadline. For example, if an investor bought euros against the US dollar at a value of 1.0500 on June 30, the contract will be extended by a swap on June 28. If the spot rate on the market is 1.1050, the investor would sell the same number of euros at that rate and receive the profit in dollars on June 30. Before expiration, a futures trader has three options: Between the last trading day and the expiration day, usually a few days ago, this is called the rollover date. Nowadays, volatility is increasing. Day traders should be aware of the volatility that takes place during rolling periods. Good luck with trading and testing strategies related to contract renewal dates, please check out the futures platform in TradingSim. « Rollover » refers to the process of closing all option positions in expiring futures and opening contracts in newly formed contracts.

A forward position must be closed either before the first day of notice in the case of physically delivered contracts or before the last trading day in the case of cash-settled contracts. The contract is usually concluded against payment in cash, and the investor simultaneously enters into the same futures contract negotiation with a later expiration date. To make the exchange, the holder of the long contract must place the entire value of the contract with the clearing house to receive the asset. We now know that we need to extend our position before the expiry date. But how do you know exactly which day to ride? Rolling futures refer to the extension of the expiry or duration of a position by closing the initial contract and opening a new longer-term contract for the same underlying asset at the then prevailing market price. A role allows a trader to maintain the same risk position beyond the initial expiration of the contract, as futures contracts have a limited expiration date. It is usually carried out shortly before the expiry of the initial contract and requires that the profit or loss of the initial contract be settled. Turnover occurs when a trader moves their position from the first month`s contract to another contract in the future.

Traders determine when to switch to the new contract by observing the volume of the expiring contract and the contract for the following month. A trader who is going to roll his positions can choose to move to the next monthly contract when the volume of that contract has reached a certain level. Prices are marked on the market and the term trader`s account is debited or credited depending on whether the trader was long or short. When it comes to renewing a futures contract, there are two things you need to keep in mind. These are: Since we`ve covered why futures contracts are renewed, now let`s look at the two methods of settling futures contracts. To perform a rollover, you need to know which contract you are going to switch to and closely monitor volume differences. Once the new contract has more volume than your current contract, make the change. In most cases, your futures broker will automatically close the position. However, it is in your interest not to allow this, but to focus on managing your position before the expiration date. A very simple way to do this is to observe the volume of the two contracts. If you know the expiration date is approaching, monitor the volume of both contracts. As soon as the new contract is negotiated heavier than the one you are currently in, make the change.

The symbolic name of a futures contract consists of the following three parts: For traders, the percentage of turnover is important because it can give a good idea of the strength of the dominant trend. If the carry-over from the previous month to the current month is 70%, and the carry-over from the current month to the following month amounts to 80%, and the price of futures contracts has risen steadily, this is a bullish indication. Therefore, the percentage of turnover cannot be relied upon alone, but must be considered in conjunction with price movement. The information contained in the market comments comes from sources considered reliable, but CME Group does not guarantee its accuracy and expressly disclaims any liability. Neither the information contained herein nor the opinions expressed therein constitute a solicitation to buy or sell futures or options. The information compiled by CME Group on this website is for general purposes only. All information and data contained herein are provided « as is ». CME Group declines all responsibility for errors or omissions.

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