Rolling Trades

An Introduction to Rolling Trades and their Uses

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If you master how to utilize rolling trades proficiently, then you can implement them to help increase your profits when trading the spread betting markets.

Rolling contracts have been specifically constructed in a similar way to the better known daily trades. However, whereas you must close your spread bets based on daily contracts by the end of the present trading session, you can automatically roll them over into subsequent days if you based them on rolling trades.

This lesson is intended to introduce you to the primary features of rolling trades and demonstrate how to optimize their usage. These objectives will be done by first introducing the standard daily contract before discussing rolling trades. By doing so, you will then be able to compare their functionality and purposes. Finally, a simple example of a rolling trade will be presented so that you can assess its performance.

Introducing Daily Trades

What precisely are they and can you exploit them to improve your spread betting profitability? Essentially, daily trades have been structured so that they possess smaller spreads than those of weekly, monthly and quarterly contracts. Their other key attribute is that they only have a maximum lifespan of 1 day. In addition, you can execute such a trade at any time during the day. However, you must not forget that they must always be closed by the end of the current trading day. For example, the FTSE Daily Index operates between 8am GMT and 4.30pm GMT. As such, these active hours imply that you can open a daily trade between these two specified times. However, you must then ensure that your spread bet is closed by 4.30am GMT.

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If you intend to speculate on the spread betting markets utilizing daily trades, then you are advised to carefully note the time zones of trading relative to your own. For example, many traders experience frustrating difficulties implementing daily trades on the Nikkei if they live and work in a country, such as the USA. This is because of the significant time difference that separates Japan from North America. In contrast, they find that trading the FTSE and the Dow Jones Industrial Average is a more viable option because the time difference between the USA and the UK is not so great. Consequently, you must ensure that you make an important note of the relevant time zones whenever you instigate daily trades as they can dramatically influence your ability to spread bets successfully.

In addition, you should only consider trading the spread betting markets using daily trades if you are convinced that the benefit of reduced spread sizes will counter the increased risk exposure associated with your spread bets expiring in hours as opposed to weeks or months. You may need to expend some time and energy to confirm that you really can secure worthwhile profits using this type of trading contract using a demo account before you go live.

Introducing Rolling Trades

Rolling trades have been devised so that they reflect the current price of the underlying asset upon they are constructed as opposed to a future value. This type of contract also involves the reduced cost of lower spreads which tend to be even smaller than the ones associated with daily and quarterly trades.  You can utilize rolling trades to speculate on many different assets especially those companies that are registered members of the Dow Jones Industrial Average, the NASDAQ and FTSE.

A rolling trade possesses an identical structure to a daily trade except that it does not need to be closed by the end of the present trading day. Instead, these contracts are automatically rolled-over into the next trading session. For example, the trading of such a spread bet would be halted at 4.30pm GMT when the UK stock markets close before being re-activated the following day when equity trading re-commences. This process will continue indefinitely until either you effectively close your spread bet yourself or you run out of margin to support it.

Example of a Rolling Trade

Envisage that your spread betting broker has just provided you with a spread quote for a particular asset of 300 / 310. As your analysis indicates that the price of this security will decline over the coming days, you opt to open a short rolling trade at 300 by wagering @ £10 per point. An important feature of the rolling trade is that you will be paid interest for every day that you maintain your spread bet open.

The amount of interest that you will collect varies but is normally calculated using the following formula: ((LIBOR 1 month – 2%)/365) times (the total value of your underlying asset)).

LIBOR is the current standard base interest rate. Assume that the rate presently equals 5%.

As such, the interest that you will receive daily if you roll-over your spread bet will equal ((5% -2%)/365) x (10 x 300.00) = (0.0082% x 3000.00) = 24.6p

Imagine now that the stock markets have just closed at 4.30 GMT and your trade did not drop as expected by recording a final mid-point value of 305.

As such, your current loss will equal (305 – 300) x £10) = £50.00

Your rolling bet will then be automatically re-opened the following day at 305 by shorting at £10.00 per point. Consider now that price plunges to a mid-range spread value of 290 by the end of the next trading day producing you a profit of £150.00. Also remember that you would have received 24.6p for keeping your trade active overnight.

One of the primary advantages of rolling trades is that they exhibit smaller spreads than other contract types. However, you will have to pay a small premium everytime you activate such a spread bet which can negate the benefits of the lower spread.

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