If a contract for difference represents a future, the CFD broker has to roll over the contract with his client into a subsequent contract in good time before the maturity of the futures contract in order to avoid expiry. This may incur costs.
An example: A CFD refers to the DAX Future. Due to the contract specifications of the EUREX, this expires on the penultimate Friday of the calendar months March, June, September and December. The CFD maps a specific contract with one of these expiration dates.
An example of a rolling transaction
If, for example, the CFD refers to the December contract, the CFD broker will simultaneously close the position in the December contract and open a position in the March contract in the first days of December. It is typical for financial futures that contracts with a maturity date further in the future are traded at a higher price than contracts maturing earlier.
The opening of the new position is thus at a higher price than the closing of the old position.
In the case of a long position, a higher price in the underlying asset would lead to profits for the holder of the CFD. However, the rolling process does not have the effect of a price increase, but rather a subsequent increase in the cost price.
The intrinsic value of the CFD contract is lower after the roll has been completed than before because the proceeds from closing out the first future are not sufficient to fully finance the position in the next future due.
What are negative roll costs?
This is always the case when the futures price curve rises and futures maturing further in the future are quoted at a higher price than futures maturing earlier. With futures on financial instruments such as shares, share indices or bonds, the forward price curve almost always rises. The situation is different for commodities.
Here, a falling forward price curve is basically conceivable. In this case, contracts maturing further in the future are quoted at a lower price than futures expiring earlier. This situation is also called backwardation and occurs, for example, when demand for commodities is currently very high.
In this case, the rolling costs are negative, i.e. profits are generated by the rolling process. The rolling costs for CFDs on futures should be offset by much lower financing costs than for CFDs on spot instruments in https://exness-ar.com/login/. After all, the CFD broker, like all market participants in the futures market, only has to deposit a fraction of the position value as collateral. If a broker charges high financing costs for CFDs on futures contracts, he is therefore not treating his customers fairly.
Market makers always win
The market maker is in a comfortable position: the claims that a client acquires in the event of price changes are matched by equivalent claims of the broker against the other client. The broker thus trades a neutral position without any market risk of his own. The market maker's profit arises at the time the position is opened.
At this point in time, there is an unrealised claim against the holder of the long position to the extent of two points - resulting from the fact that the long position can only be closed out at the bid price, which is two points lower.
Immediately after the short position has been booked, there is also a claim against the holder of the short position to the extent of two points, because this position can only be closed out at the ask price, which is again two points higher.
