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What Traders Need To Know About Futures Rollover

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What Traders Need To Know About Futures Rollover

One element of being a successful trader is understanding and anticipating market phenomena that may impact trading action on a given day. One of the biggest periodic trading catalysts is futures rollover, which can create extreme volatility on or around futures expiration dates.

Benzinga PreMarket Prep co-host Joel Elconin recently discussed everything traders need to know about futures rollover.

“The second Wednesday of every [December], institutions and traders start to roll over the contracts from the December contract to the March ‘19 contract. Financial futures only trade March, June, September and December,” Elconin said.

Futures rollover occurs when traders exit their positions in current month futures contracts and enter a new position in later-dates contracts, essentially maintaining their net exposure and creating turbulence in the market.

“What this does in the bottom line is that it spreads liquidity through two contracts as it rolls over, so you get these air pockets in the market because you don’t have equal liquidity in the main contract,” Elconin said.

Futures markets can be very unpredictable on or near rollover days. Experienced traders know trading action follows volume, but extremely volatile rollover dates may not be the best time to trade.

“Over the years, I know some guys on the floor that will not even trade the day before rollover, the day of rollover or the day after rollover,” Elconin said.

Traders looking to take a shot at trading futures rollover or who follow others in staying on the sidelines on those days can keep track of any upcoming futures rollover dates by using a number of online trading calendars, such as the one provided by CME Group here.

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Posted-In: CME group PreMarket PrepEducation Futures Markets General Best of Benzinga

 

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