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How does rollover works?

How to Trade Rollovers
Written by David

How does rollover works? Contract ends and you are quoted a new price are you? How can I roll contracts at IG Index

The spread betting provider charges you a small rollover fee based on the interest the loan they are offering you will cost them, it’s a very small amount of money so shouldn’t affect your decision to hold a share or not.

For rolling daily contracts at IG Index, it is a setting on IG….if set, it just rolls at prevailing price. Or you can just call IG Index and ask them to roll the contract for you. Say the opening spread is 100-102. You open the bet and pay 1p spread (half). When the bet is closed for rollover you pay 1p spread (half). The bet is then opened with no spread. When you close you are charged 1p (half) or, if it is rolled again you pay 1p (half) and so on. In other words, each time you roll it costs half the spread.

For rolling futures it works a bit differently. They close the bet at mid price of bid/offer and a new position is opened at next quarter bid/offer. Around 4.35PM this deal is done and you are not able to see the real level 2 bid/offer and sometimes you end up paying more than opening a new bet. Note that for rolling futures quarterly share contracts it can be quite expensive though and it can cost quite a bit on wide spread stocks. I have done this with IG Index a few times, not happy but sometimes there is not much choice, most of the spread betting firms deal this way.

“IG generally offers a spread concession when a bet is rolled over to the next liquid period, so that the total cost of closing the old bet and opening the new one is normally cheaper than if they were done as two separate transactions. There are different types of concession depending on the market and the type of bet.”

Since every roll costs money it makes shares cheaper to hold (if you have the capital) than spreadbetting over the longer term (6 months +). It’s all just a trade-off and the benefit just depends on your particular circumstance.

Note: Please bear in mind that when you roll a 1/2/3 quarter bet using the automatic rollover it is only rolled to the next quarter (ie, when a client has ticked the box requesting that all positions still running at expiry are rolled without having to phone). You cannot roll the bet for more than a quarter. However, if you are rolling a spread betting position by phone you can ask to roll for 2 or 3 quarters rather than one quarter. Though it does depend which dealer you get through to, as most of them appear trained for rolling one quarter and have to pass the phone to a more savvy dealer to arrange a ‘non-standard’ roll. I recall doing that when I had some June expiries that I wanted to roll to December.

EDIT: However on stocks that are volatile (volatile from day to day for example despite being steady over the longer term), I prefer to choose my own exit on a peaky day ahead of expiry, and hope to buy in on a dippy day a week or so later for the subsequent quarter, and do better than a simple rollover

About the author

David

I first cut my teeth in the Square Mile in the winter of 2002. I was young, fresh-faced and straight out of university; keen but maybe a little naïve about the way the investment world really worked… A few years ago I discover a whole new world of opportunity: spread betting on the financial markets.

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