Expiration refers to the date when a financial contract, such as a futures contract or options, ceases to exist or becomes invalid. On this date, traders must settle their positions, either by closing them or rolling them over to the next contract period.
Rollover is the process of extending the expiration date of a contract by entering into a new contract with a later expiration date. In forex, rollover typically refers to the interest rate adjustment that occurs at the end of each trading day when traders hold positions overnight.
Expiration and rollover are important because they directly impact how traders manage their contracts and positions. Traders need to be aware of expiration dates to avoid automatic position closure and to properly manage their trades. Rollover helps traders who wish to keep positions open without physically settling contracts.
For example, if a trader holds a futures contract that expires on a certain date, they will either need to close the contract or roll it over into a new contract with a later expiration date. In forex, rollover involves an interest rate adjustment based on the difference between the two currencies in a pair.
Test your knowledge of expiration and rollover in forex trading with the following questions:
