Futures CFD

With Futures CFD instruments, you can speculate on the rise or fall in the price of selected agricultural commodities, government bonds, or, for example, the dollar index. These CFD instruments are linked to the underlying asset, which is always a specific futures contract. Due to the specificity of this instrument, it is advisable to get acquainted with the basic parameters and principles of Futures CFD before trading. After all, that's why we wrote this article for you.

Speculate on the price movements of selected futures contracts

From now on, these new instruments are available in the MT4 platform and the MT4 mobile app. You can always find them with the extension “.f” (for example, COFFEE.f). Retail clients can trade them using 1:10 leverage. Clients with the status of a professional trader can go as high as 1:50 on some instruments.

PLEASE NOTE: To display the new instruments in your MT4 platform, you first need to log out and then log back in again.

The volume of 1 lot always corresponds to the size of the contract according to the specification of a specific instrument, while this information is available on the trading platform or on our website. The fee for 1 traded lot is 10 USD.

 

The main difference compared to other instruments in our offer is the so-called rollover. This is a technical process, thanks to which our clients can trade Futures CFDs without fear of contract expiration. The position is, therefore, rolling over from the expiring contract to the current contract.

You should bear in mind that the rollover changes the price, which is then compensated by the balancing item. More information about the rollover, how it works, and how it will affect open positions will be described further in this article.

 

CFD Futures Rollover Adjustment

With the introduction of the possibility to trade CFD contracts on underlying futures, there is also the need to roll over the positions on underlying futures contracts to the following contract months. Clients, in this case, will not have to deal with anything apart from the so-called “rollover adjustment”. This means that an operation that either credits or deducts your balance on a trading account takes place.

Why does the rollover have to take place?

 

The price of CFD symbols copying the underlying futures contracts is derived on the basis of the prices of these futures contracts. A futures contract is an exchange-traded instrument that obliges its buyer to collect (the seller, on the contrary, to deliver) the underlying asset in a specified quantity, of a specified quality, and agreed current price on a future date mentioned on the contract (hence “the futures”). For example, agricultural commodities, such as wheat or corn or energy commodities such as oil and petrol, as well as financial instruments such as currencies, bonds, or interest rates, are traded on stock exchanges through futures contracts.

Each futures contract is of limited duration after which it expires. If buyers/sellers do not dispose of their held futures contract before its expiration, they are obliged to collect/deliver the underlying asset (coffee, corn, etc.) of the futures contract. Some futures contracts also have so-called cash settlement, when the underlying asset is not being delivered, but one party pays to the other in cash instead. Most traders and market participants, including us and our liquidity providers, want to avoid this situation, and therefore have to roll over their held positions from the currently held futures contract to one with a later expiration date.

The rolling itself takes place in the form of closing a trading position on the current contract and reopening it on a contract with a farther out expiration date. Clients of Purple Trading can don’t need to keep this in mind as we roll over the CFD Futures instruments automatically.

Contango and backwardation, what is it?

 

The price of each futures contract carries several factors, each of which has a certain effect on its price.
 

Factors that determine the price of a futures contract include, for example:

 
  • the spot price of the underlying asset
  • storage costs
  • insurance costs and more

 

The influence of these factors on the current price of a futures contract changes as the expiration time approaches, thus affecting the price of each futures contract to a different extent.

For example, the cost of storing wheat will be higher for a contract that expires in six months compared to a contract that expires in a month. Therefore, when we look at the prices of futures contracts with different expiration dates for one commodity, each contract will be valued differently by the market, as the contracts differ from each other by the expiration date.

Contango

If contracts with a farther out expiration date are more expensive than contracts with a closer expiration date, we speak of the fact that the market is in the so-called contango. The figure below shows the structure of the futures market for coffee contracts, which shows the situation where the market is in the contango because contracts with more distant expiration are more expensive than closer contracts.
 

Kontango na trhu s kávou

Figure 1: Kontango in the coffee market (source: spreadcharts.com)

Backwardace

The opposite of contango is backwardation, a state where more distant contracts are cheaper than closer ones. The figure below shows such a market structure and captures the situation on the cotton market.


 

Figure 2: Backwarding in the cotton market (source: spreadcharts.com)

Continuous CFD futures contracts and calculation of rollover adjustment

 

Understanding the meaning of contango and backwardation is key to properly understanding how differences in the prices of individual futures contracts, with different expiration times, affect the rollover of continuous CFD futures contracts on the broker’s side.

Purple Trading offers trading in continuous CFD futures contracts, which means that our client is not required to close the trade before expiration.

When holding a trade during a rollover, the client's account will be compensated for "artificially" generated profit or loss caused by the said price change. As a result of the rollover, the price of a CFD contract changes dramatically precisely due to the existence of a difference in prices between the current underlying futures contract and the new contract to the previous contract rolls over.

During the settlement of this difference, a rollover adjustment in the form of a separate balance operation is deducted (or credited to the trader's account). The rollover adjustment includes compensation for the difference in profit/loss resulting from the rollover and in addition a 20% fee charged by Purple Trading or our liquidity provider. This fee is calculated as 20% of the size of the rollover adjustment itself.

The rollover adjustment is always calculated on the basis of the net open position and is converted from the currency of the trading symbol to the currency in which the trading account is created. Therefore, if a trader has more than one position open in his account in different directions, the sum of their sizes will be taken and the rollover adjustment will be calculated on the basis of the calculated net exposure.

The following table shows whether the rollover adjustment will be credited to or deducted from the trader's account, depending on the direction of the position held and the market structure at the time of the rollover.

 

Rollover fee accounting depending on the direction of the position and the market structure
Trade direction / market structure Contango Backwardace
Buy Rollover adjustment pulled Rollover adjustment attributed
Sell Rollover adjustment attributed Rollover adjustment pulled

 

Examples of rollover adjustment calculation

Example 1: Contango and BUY position - example of rollover adjustment calculation


In this example, consider the market structure located in the contango (the contract to be rolled over to has a higher price than the current contract) and the open BUY position in the coffee market represented by the symbol COFFEE.f.


Other input parameters for the calculation are as follows:

 

  • Position size: 2 lots

  • Currency symbol: USD

  • Account currency: CZK

  • USD / CZK exchange rate: 21.5

  • BID / ASK price of the current contract (expiring in September): 193.18 / 193.22

  • BID / ASK price of the new contract (expiring in December): 195.63 / 195.67

  • Tick size on COFFEE.f symbol: 0.01

  • Tick value on the COFFEE.f symbol: 0.1 USD
  • Rollover fee: 20%

 

Calculation

First, it is necessary to determine which prices will be used to calculate the rollover adjustment. Since the trader has an open buy position, it is necessary to consider the BID price of the current contract (193.18) during its hypothetical closure and the ASK price on the new contract (195.67) during its hypothetical reopening. After deducting these two prices, we get the price difference (-2.49), which we will use when calculating the rollover adjustment.

Because the market is in contango, an “artificial” profit is being made on the trader’s account after the rollover. We, therefore, subtract the higher price (new ASK) from the lower one (current BID) to get the resulting fee as a negative number, as it needs to be deducted:
 

193.18 – 195.67 = -2.49

 

Figure 3: Prices used when scrolling the purchase position in the contango

 

Now divide the calculated price difference by the size of the tick (0.01) and multiply it by the value of the tick (0.1) to obtain its face value:

-2.49 / 0.01 * 0.1 = -24.9 USD

We then multiply the calculated face value by the traded volume (2) in lots:

-24.9 * 2 = -49.8 USD

The 20% rollover fee charged by the broker must now be deducted from the adjustment calculated in this way:

-49.8 - (|-49.8| * 0.2) = -59.76 USD

We will convert the resulting rollover adjustment into the account currency (CZK) from the symbol currency (USD) according to the USD / CZK exchange rate (21.5):

-59.76 * 21.5 = -1284.84 CZK

 

Result

The result is a rollover adjustment of size -1284.84 CZK. This amount will be deducted from the trader’s account through the balance operation.

 

Example 2: Contango and SELL position - example of rollover adjustment calculation

 

In this example, consider again the market structure located in the contango and the open SELL position in the coffee market represented by the symbol COFFEE.f.

Other input parameters for the calculation are the same as in the previous example:

  • Position size: 2 lots

  • Currency symbol: USD

  • Account currency: CZK

  • USD / CZK exchange rate: 21.5

  • BID / ASK price of the current contract (expiring in September): 193.18 / 193.22

  • BID / ASK price of the new contract (expiring in December): 195.63 / 195.67

  • Tick size on COFFEE.f symbol: 0.01

  • Tick value on the COFFEE.f symbol: 0.1 USD

  • Rollover fee: 20%

 

Calculation

First, it is again necessary to determine which prices will be used to calculate the rollover adjustment. Since the trader has an open SELL position, it is necessary to consider the ASK price of the current contract (193.22) during its hypothetical closure and the BID price on the new contract (195.63) during its theoretical reopening. After deducting these two prices, we get the price difference (2.41), which we will use when calculating the rollover adjustment.

Because the market is in contango and the trader incurs an "artificial" loss on the account after the rollover, we subtract the lower price (current ASK) from the higher one (new BID) to get the resulting fee in positive values as it is added to the account::
 

195.63 – 193.22 = 2.41

Figure 4: Prices used when rolling the sell position in the account

 

Now divide the calculated price difference by the size of the tick (0.01) and multiply it by the value of the tick (0.1) to obtain its face value:

2.41 / 0.01 * 0.1 = 24.1 USD

We then multiply the calculated face value by the traded volume (2) in lots:

24.1 * 2 = 48.2 USD

The 20% rollover fee charged by the broker must now be deducted from the adjustment calculated in this way:

48.2 - (48.2 * 0.2) = 38.56 USD

We will convert the resulting rollover adjustment into the account currency (CZK) from the symbol currency (USD) according to the USD / CZK exchange rate (21.5):

38.56 * 21.5 = 829.04 CZK

Result

The result is a rollover adjustment with a size of 829.04 CZK. This amount will be credited to the trader’s account through the balance operation.

Example 1: Backwardation and BUY position - example of rollover adjustment calculation

In this example, consider the market structure located in the backwardation (the contract to be rolled over to has a lower price than the current contract) and the open BUY position in the cotton market represented by the symbol COTTON.f.

Other input parameters for the calculation are as follows:

  • Position size: 2 lots

  • Currency symbol: USD

  • Account currency: CZK

  • USD / CZK exchange rate: 21.5

  • BID / ASK price of the current contract (expiring in October): 94.13 / 94.17

  • BID / ASK price of the new contract (expiring in December): 92.28 / 92.32

  • Tick size on the COTTON.f symbol: 0.01

  • Tick value on the COTTON.f symbol: 1 USD

  • Rollover fee: 20%

 

Calculation

First, you need to specify which prices will be used to calculate the rollover adjustment. Since the trader has an open purchase position, it is necessary to consider the BID price of the current contract (94.13) during its hypothetical closure and the ASK price on the new contract (92.32) during its hypothetical reopening. After deducting these two prices, we get the price difference (1.81), which we will use when calculating the rollover adjustment.

Because the market is in backwardation and the trader incurs an "artificial" loss on the account after rolling, we subtract the lower price (new ASK) from the higher one (current BID) to get the resulting adjustment in positive values as it is credited to the account:
 

94.13 – 92.32 = 1.81

 

Figure 5

Figure 5: Prices used when rolling a buying position in backwarding

 

Now divide the calculated price difference by the size of the tick (0.01) and multiply it by the value of the tick (1) to obtain its face value:

1.81 / 0.01 * 1 = 181 USD

We then multiply the calculated face value by the traded volume (2) in lots:

181 * 2 = 362 USD

The 20% rollover fee charged by the broker must now be deducted from the adjustment calculated in this way:

362 - (362 * 0.2) = 289.6 USD

We will convert the resulting rollover adjustment into the account currency (CZK) from the symbol currency (USD) according to the USD / CZK exchange rate (21.5):

289.6 * 21.5 = 6226.4 CZK
 

Result

The result is a rollover adjustment of size 6226.4 CZK. This amount will be credited to the trader’s account through the balance operation.

 

Example 2: Backwardation and SELL position - example of rollover adjustment calculation

In this example, consider the market structure located in the backwardation and the open SELL position in the cotton market represented by the symbol COTTON.f.

Other input parameters for the calculation are as follows:

  • Position size: 2 lots

  • Currency symbol: USD

  • Account currency: CZK

  • USD / CZK exchange rate: 21.5

  • BID / ASK price of the current contract (expiring in October): 94.13 / 94.17

  • BID / ASK price of the new contract (expiring in December): 92.28 / 92.32

  • Tick size on the COTTON.f symbol: 0.01

  • Tick value on the COTTON.f symbol: 1 USD

  • Rollover fee: 20%

 

Calculation

First, you need to specify which prices will be used to calculate the rollover adjustment. Since the trader has an open SELL position, it is necessary to consider the ASK price of the current contract (94.17) during its hypothetical closure and the BID price on the new contract (92.28) during its hypothetical reopening. After deducting these two prices, we get the price difference (-1.89), which we will use when calculating the rollover adjustment.

Because the market is in backwardation and the trader makes an "artificial" profit on the account after the rollover, we subtract the higher price (current ASK) from the lower one (new BID) to get the resulting fee in negative values as it is deducted from the account:
 

92.28 - 94.17 = -1.89

 

Figure 6: Prices used when rolling a sales position in backwarding

 

Now divide the calculated price difference by the size of the tick (0.01) and multiply by the value of the tick (1) to obtain its face value:

-1.89 / 0.01 * 1 = -189 USD

We then multiply the calculated face value by the traded volume (2) in lots:

-189 * 2 = -378 USD

The 20% rollover fee charged by the broker must now be deducted from the adjustment calculated in this way:

-378 - (|-378| * 0.2) = -453.6 USD

We will convert the resulting adjustment into the account currency (CZK) from the symbol currency (USD) according to the USD / CZK exchange rate (21.5):

-453.6 * 21.5 = -9752.4 CZK

 

Result

The result is a rollover adjustment of size -9752.4 CZK. This amount will be deducted from the trader’s account through the balance operation.

Information and alerts for upcoming rollover

The rollover date of individual CFD futures contracts for the upcoming month can be found on our website in the table with information about the CFD futures contract. Purple Trading also informs all its clients about the rollover dates for the coming month via email at the beginning of the month.

The rollover takes place during the business day listed in the table with the specifications of the given symbol. All our clients will be informed and can decide in advance whether to hold their position through the upcoming rollover or whether to close it and thus avoid rollover adjustment.

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