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What is a Rolling Daily Contract?


Jane Goodwin

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Traders use a “rolling daily contract” in spread betting and it is a contract which rolls over, or renews each day, along with any attached orders. When the contract rolls over it incurs an overnight financing charge. This financing charge applies for every night the trader holds the contract, but the rolling daily contract can still be more cost effective for short-term trading versus a futures contract. Unlike futures contracts, which have near term expirations, the rolling daily contract has an expiration which is many years in the future, and it is this feature that allows the contract to remain open for as long as the trader needs. Rolling daily contracts enjoy lower margins and tighter spreads, and traders can see a closer correlation with the price in the underlying market. While traders may think only of the cost of holding a rolling daily contract open, sometimes you can receive a credit to your account from an open rolling daily contract. For example, if you have an open contract on a stock that goes ex-dividend you would receive a credit to adjust for that dividend. The dividend credit for long contracts is 80% of the dividend. However, for those who have a short position on an equity when it goes ex-dividend, there is a charge of 100% of that dividend.

Rolling Daily Contract Overnight Financing

The reasoning behind the overnight financing required for rolling daily contracts lies in the fact you’ve only put down a minimal initial margin requirement to open and hold the position. To keep a long position open it is necessary to debit the account of the position holder overnight to cover charges. If you have a short position, you receive a credit to your account based on the interest rate in effect. Sometimes interest rates may be so low that a short position incurs an overnight charge, but this is unusual. Because each rolling daily contract incurs a debit or credit overnight on every night, positions held over a non-business day (such as a bank holiday or weekend) are charged based on the number of nights the position is held open until markets reopen. So, when a position is kept open over a weekend it is debited or credited for three days.
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