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The majority of market participants close out their positions before the contract expiration date. Unless you are participating in the market as a hedging vehicle and you want to receive or deliver the underlying asset, it is very important to close out your position before expiration. Having said that, for some financial futures contracts any positions still open at expiration are settled in cash. It would be impossible to deliver, for example, the FTSE 100 index at the precise value specified, so such markets are settled in cash on expiry. Anyone who has a position that they wish to keep, roll it over to the next contract month. So if I am long one FTSE 100 futures contract in early March and wish to remain long, I will sell my March contract and simultaneously buy a June contract. I will therefore close out the March position, which is close to expiry, and initiate a June position so that I am still long one contract. As to the date that one might roll their positions forward, there are two approaches. Either choose a particular day, for example 10 trading days before expiry, or, choose to roll positions forward when the trading volume in the next available month is greater than the near month. 21 Chapter 4: The Mechanics of the Trade Orders There are various types of order you can use to initiate or close a position, depending on your objectives. Market Order: This is a request to trade (either buy or sell) at the best available price. Market FTSE 100 Futures BID: 6432 OFFER: 6434 A market order to sell would be filled at the best available price, i.e. 6432 A market order to buy would be filled at the best available price, i.e. 6434 Market orders are always executed Limit Order: A limit order specifies the worst price that an order can be filled at. It sets a limit to the price the trader is willing to trade. If a limit order to buy at 6430 has been placed in the market, the order can only be executed at 6430 or better (i.e. 6430 or less). |
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