Whenever a futures contract reaches its expiry date, and an automatic rollover is defined for the instrument, all open positions and orders are automatically rolled-over to the next futures contract. In order to nullify the impact on the valuation of the open position, given the change in the underlying instrument’s rate (price) for the new contract period, a compensating adjustment is made to the account. Stop Orders and Limit Orders are also adjusted, to reflect the rate (price) of the instrument in the new contract.
The value of your position continues to reflect the impact of market movement based on your original opening level, size and spread. If the new contract is trading at a higher price, Buy positions will receive a negative adjustment, and Sell positions will receive a positive adjustment. Conversely, if the new contract is trading at a lower price, Buy positions will receive a positive adjustment, and Sell positions will receive a negative adjustment.
Example of rollover adjustment calculation:
You hold a Buy position of 100 contracts of Oil futures.
Oil futures rates at the time of rollover:
Existing contract Buy rate = $61.30
Existing contract Sell rate = $ 61.25
New contract Buy rate = $62.50
New contract Sell rate = $ 62.45
Sell Rate Difference = [New contract sell rate] - [Existing contract sell rate] = $62.45 - $61.25 = $1.20
Buy Position Adjustment = - ([Amount of contracts] * [Sell rate difference]) = - (100 * $1.20) = - $120
Summary: You will continue to hold the same position of 100 contracts of Oil futures. An adjustment of -$120 will be added/subtracted. Your equity remains the same.See video here.
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