In general, many brokers who specialize in binary options offer their clients the tool called Rollover. This option results in an increased chance of success in the financial market. The Rollover tool is powerful if used correctly, increasing your win rate. However, it can be dangerous if not used properly.
Rollover: limit losses on “Out the Money” trades
It is originally conceived to limit losses for current positions that have a high percentage of ending without success at the end of maturity. In this case, the trader must fully know the rules that must be followed for the operation before being applied.
General rules in the use of this tool
Each broker can have certain variations in the general rules, but basically, it must be applied in the following way:
- The trader will only apply the Rollover once in each operation.
- Rollover application is only done if an active position is in “Out the Money” status.
- A great majority of traders are only allowed to apply Rollover in those positions that only have between 15 and 20 minutes left to finish.
- The trader will charge a commission for the use of Rollover that could reach up to 30% of the total transaction. Although many limit it to a fixed number, it will be necessary to take into account the loss of the operation and add the commission to the broker.
- When the trader selects the Rollover tool on the platform, generally the expiration will be extended until the next available one.
The use of Rollover is not recommended for traders who are just starting, it is recommended to be executed by professionals with some experience. In this case, there are no established rules to apply to be sure of success, for this reason, we advise that it is not used by novice traders.
Rollover can be very effective in “Out The Money” trades close to expiration. In these cases, the broker will decide the viability to extend the expiration period if he thinks he can go “In The Money”. These decisions will be based on experience, so that something that seems like it could give you losses may end up giving you benefits.
Rollover on Forex
The position changes in CFDs (Contract For Difference) will have a price called “overnight commissions” (or swap points) because this occurs when the markets are almost closing at the last minute. For Forex, which is the almost par excellence market for CFDs, it may happen that instead of paying interest, we receive money if we maintain the position. This is due to the different interest rates, if the purchased currency pays more interest to keep it than when it is sold, then we will receive money.
Future Rollover Purchased
As we know, to roll over a purchased position, it is necessary to sell the current future and then buy from the subsequent expiration. The indices are defined with quarterly maturities that will be in the months of March, June, September and last December. Instead, futures have monthly maturities on the third Friday of each month.
If we had bought a future due in September, if nothing is done when it expires, the contract would end as it is. On the other hand, if we decide to maintain the buy position, it would be necessary to sell the future that expires in September to buy the one that expires in December. Do not forget that futures always expire every third Friday of the month. Therefore, the ideal would be to carry out trades days before, as volatility at expiration could increase and be unpredictable.
It could be the situation of having a downward position and that upon reaching the expiration date we would be interested in extending it over time. In this case, we should buy a future with the same expiration we already have and sell one with the next expiration.
There are third Fridays where future maturities on stocks, index futures, and options on stocks and indices come together. This situation is called “Quadruple hour witch” and in it, the volatility of the market is enormous. Thus, in this case, it is always recommended to do the rotations before this expiration date.
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