• January 4, 2022

What is a rolling spot forex contract?

 

Forex trading is a risky business. Forex brokers provide traders with different contracts to lessen the risks involved. One such contract is called Rolling Spot Forex Contracts.

What is a rolling spot forex contract?

A rolling spot forex contract is an extended one-month term on a currency pair selected by the trader from the standard lot list.

 

It usually means that a trader will open a new position at the end of each month and close it at the start of next month, thus opening a new position every thirty days. For instance, if you had opened a new EUR/USD new position on January 1st 2014, for three months, you would have been selling Euros as Dollars as they got more vital as per your pre-planned strategy. Then on February 1st, you would have opened a new three-month EUR/USD position, now selling Dollars as they got weaker and so on until your contract expires on April 1st 2014.

Standard lot vs rolling spot

The difference between the standard lot and rolling spot is that with a standard lot, you will always buy or sell one whole unit of currency; in the case of the rolling spot, you might trade up to 30%, which means if the initial lot size was 100,000 units then with Rolling Spot Forex, you could trade up to 300,000 units (3 lots). On the other hand, if the initial lot size was 10,000 units, you can trade only up to 30,000 units (3 lots).

What is significant about this type of contract?

What is significant about this type of contract is that you never hold overnight positions at any point in time, so no matter how far the market swings in either direction, you won’t be caught by surprise when trading with a rolling spot. Some traders prefer to stick with their chosen lot size throughout their entire trading career – for instance, they might trade only standard lots during the day and then switch over to Rolling Spot Forex Contracts at night.

Essential difference between Rolling Spot Forex & Standard lot

Another essential difference between Rolling Spot Forex & Standard lot is that in the case of one standard lot if your stop-loss is hit or your take profit order is executed, the position would naturally close immediately. In contrast, in the case of three units contracts, this gives you an additional rollover which allows you to trade three units (or more) for next month again, thus compounding your profits.

 

At the same time, this also means that in case of three units pips move against you, this would be multiplied by 3 when it comes to stop loss calculation. So basically, if you place an order at 50 pips & market makes 200 pips move against you, then your stop loss will get hit at 150 pips, which is why many traders feel that trading with Rolling Spot Forex Contracts is riskier than a standard trading lot because the risk/reward ratio changes dramatically over some time.

Risk of rolling spot Forex contracts

While a rolling spot forex contract does have some advantages, there are also a few potential risks that traders should be aware of. One chance is that the prices of the currencies being traded may move in opposite directions, leading to a loss of position. Additionally, if market conditions change suddenly, it may become difficult or impossible to close an existing position at a reasonable price.

 

Finally, because rolling spot forex contracts involve making multiple trades, there is always the potential for slippage (the difference between the expected price and the actual price achieved). It can lead to losses in cases where the trader cannot exit their position at the desired price.

 

Despite these risks, a rolling spot forex contract is a handy tool for those who trade currencies and provide traders with the opportunity to make changes to existing positions at any time.