What Does Market Rollover Mean for CFD Traders?


Updated June 11, 2024.

In the financial space, a rollover usually refers to the process of extending the due date of a loan or credit, leading to increased fees and costs. Of course, the usage of the term rollover isn't only limited to loans, as it could be used in contracts, fund transfers, and repayments. The term is also quite popular in the trading space, so let's go over it and see what rollovers mean for CFDs.
What is CFD Rollover?
Simply put, a CFD rollover is the process of extending the expiry date of a contract for difference (CFD). This means you can "rollover" your current positions to the next day and avoid having them expire. However, keep in mind that there may be extra costs associated with this process, depending on your brokerage.
For example, imagine that you have opened a long position with your CFD brokerage on the price of Tesla stock (TSLA), assuming that the price would go up. After opening the position, the contract should, by default, expire once the business day ends and the next one begins. However, with a rollover, you can essentially bypass the rollover date (the date when the contract is set to expire) by paying a small fee, effectively extending your long position on the price of TSLA onto the next business day.
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Do Rollovers Impact Trader’s Equity?
As rollovers are generally associated with some form of interest, the cost of rolling over a position can have an effect on your overall equity. This is especially true when you leave open positions overnight for an extended period of time, leading to you being charged a higher interest from your brokerage.
Therefore, it is important to take this into account when trading CFDs and factor in the cost of rollovers when assessing your overall risk. Additionally, it’s important to remember that such costs can quickly add up and can reduce your potential profits in the long run if you are not cautious.
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Market Rollover Example
In addition to the TSLA example we mentioned above, let's take a look at a more precise example to get a better understanding of how rollover works in practice. In this example, we've decided to open up a short position on the price of the NASDAQ stock index with our CFD brokerage today.
The contract will typically expire overnight, and you will have to close the position manually. However, if you do a rollover on the position, then your brokerage will automatically extend it to the rollover date (i.e. the next trading day), giving you more time to make a decision and potentially benefit from changes in the market conditions.
It's worth mentioning that rollover rates are quite low (almost always below 1%), but the amount can compound over an extended period of time.
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