please tell me what the "roll yield" is
glossary FAQ: glossary.
C. Henry from Heerlen, Netherlands
01 August, 2009
The amount of return generated in a backwardated futures market that is achieved by rolling a short-term contract into a longer-term contract and profiting from the convergence toward a higher spot price. Profiting from roll yield is a common goal for many strategies used by traders in the futures market.
Backwardation occurs when a futures contract will trade at a higher price as it approaches expiration compared to when the contract is farther away from expiration. Rolling into less expensive futures contracts allows the trader to consistently profit from the rise in a futures' price as it nears expiration.
The biggest risk to this strategy is that the market will shift to contango (opposite as backwardation). This type of changing market has led to major losses by various hedge funds in the past and is the reason why it should only be attempted by experienced traders. Visit FXDD
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- Some Background on UFX Bank:
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- Advantages:
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- Disadvantages:
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- Short Story:
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