Traders roll over futures contracts to switch from the 澳洲幸运5官方开奖结果体彩网:front month contract that is close to expiration to another contract in a further-out month. Futures contracts have expiration dates as opposed to stocks that trade in 澳洲幸运5官方开奖结果体彩网:perpetuity. They are rolled over to a different month to avoid the costs and obligations associated with settlement of the contracts. Fut🐭ures contracts are most often settled by physical settlement or cash settlement.

Why Roll?

澳洲幸运5官方开奖结果体彩网:Rolling futures contracts refers to extending the expiration or maturity of a position forward by closing the initial contract and opening a new longer-term contract for the same 澳洲幸运5官方开奖结果体彩网:underlying asset at the then-current market price. A roll enables a trader to maintain the same risk position beyond the initial expiration of the contract, since futures contracts have 澳洲幸运5官方开奖结果体彩网:finite expiration dates. It is usually carried out shortly before expiration of the initial contract and𓄧 requires that the gain or loss on the original contract be settled.

A futures position must be closed out either before the 澳洲幸运5官方开奖结果体彩网:First Notice Day, in the case of physically delivered contracts, or before the 澳洲幸运5官方开奖结果体彩网:Last Trading Day, in the case of cash-settled contracts. The contract is usuall꧙y closed for cash, and the investor simultaneously enters into the same f♚utures contract trade with a later expiry date.

For example, if a trader is long a crude oil future at $75 with a June expiry, they woul🤡d close this trade before it expires and then enter into a new crude oil contract at the current market rate and that expires at a later date.

Physical Settlement

Non-financial commodities such as grains, livestock and 澳洲幸运5官方开奖结果体彩网:precious metals most often use physical settlement. Upon expiration of the 澳洲幸运5官方开奖结果体彩网:futures contract, the clearinghouse matches the holder of a long contract against the holder of a 澳洲幸运5官方开奖结果体彩网:short position. The short position delivers the underlying asset to the 澳洲幸运5官方开奖结果体彩网:long position. The holder of the long position must place the entire value of the contract with the 澳洲幸运5官方开奖结果体彩网:clearinghouse to take delivery of the asset.

This is quite costly. For example, one contract of corn with 5,000 bushels costs $25,000 at $5.00 a bushel. In addition, there are delivery and storage expenses. Thus, most traders want to avoid 澳洲幸运5官方开奖结果体彩网:physical delivery and roll their positions 🌳prior to expiration to avoid it.

Cash Settlement

Many financial futures contracts, such as the popular E-mini contracts, are 澳洲幸运5官方开奖结果体彩网:cash settled upon expiration. This means on the last day of trading, the value of the contract is marked to market and the trader’s account is debited or credited depending on whether there is a profit or loss. 澳洲幸运5官方开奖结果体彩网:Large traders usually roll their positions prior to expiration to maintain the same exposure to the market. Some traders may attempt to profit from pricing 澳洲幸运5官方开奖结果体彩网:anomalies during these rollover periods.