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What does it mean to "roll over" a Futures contract?​

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​​​​​​​​Rolling over a futures contract means closing a position in a contract that is about to expire and opening a new position in the same asset with a later expiration date. This allows traders to maintain their exposure to an asset without taking physical delivery or settling in cash.

Why Do Traders Roll Over Futures Contracts?
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1. Avoid Expiration & Settlement
   • If a trader holds a contract until expiration, they may be required to accept physical delivery (for commodities) or settle in cash.
   • Rolling over prevents this by shifting the position to a future contract.
2. Maintain a Market Position
   • Long-term traders and institutions use rollovers to continue their investment strategy without interruption.
3. Take Advantage of Market Trends
   • Some contracts become less liquid as they approach expiration, making rollovers essential for active traders.

How Does a Futures Rollover Work?

A rollover involves two trades:

1. Closing the current (expiring) contract (selling if long, buying if short).
2. Opening a new contract with a later expiration date (buying if long, selling if short).

​Example:

• A trader holds a December Crude Oil Futures Contract.
• Before expiration, they sell the December contract and buy the January contract.
• The position remains active, but the contract’s expiration date is extended.

Impact of Rolling Ove

Price Differences: The new contract may have a different price due to contango (higher future prices) or backwardation (lower future prices).
Transaction Costs: Traders may incur extra fees due to the bid-ask spread.
Liquidity Considerations: As expiration nears, volume shifts to later contracts, making rollovers necessary for active traders.

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