Futures are essentially a way of trading on a particular contract, at a specified future price at a specific time in the future. Investors are obliged to close position on an expiring contract or they will be closed automatically.
NAGA Markets offers their users a rollover from the old contract to the new one when the contract is about to expire, allowing clients to keep the position open.
For example, if an investor holds a long position on Crude Oil and the price at the expiry date closes at $45,00 while the new contract trades at $47,00 then the difference will be charged as a commission, otherwise, the investor will earn a riskless profit.
On the contrary, if the investor holds a short position, the difference will be added to the trading account as a positive commission.
WHAT IS ROLLOVER IN FUTURES TRADING?
Futures, which allow traders to speculate on the value of the underlying instrument without holding the instrument, are traded on margin and can be used for hedging.
For example, the S&P 500 Index is one of the most widely traded index futures contracts in the United States; stock portfolio managers who want to hedge risk over a certain period of time often use S&P 500 futures.
By shorting these contracts, stock portfolio managers can protect themselves from the downside price risk of the broader market. Alternatively, stock portfolio managers can use index futures to increase their exposure to movements in a particular index, essentially leveraging their portfolios.
The underlying commodity associated with an index future is a particular stock index, which cannot be traded directly. This causes futures to be the main way stock indexes can be traded.
WHAT IS AN INDEX?
Futures contracts are legally binding documents specifying the detailed agreement between the buyer and seller. It differs from an option in that a future contract is considered an obligation, while an option is considered a right that may or may not be exercised.