Rollover

The term “rollover” is commonly used in financial markets and refers to the process of refinancing or restructuring an existing investment or position when it reaches its maturity date or a specified time period.

Rollover typically involves a investor entering into a new agreement to either maintain or restructure an expiring financial instrument or position. This is often applicable to futures contracts, options, swaps, or loans.

For example, if an investor has purchased a futures contract and the expiration date is approaching, the investor can engage in a rollover transaction to renew or extend the contract. This can be done by either purchasing a new contract before the expiration of the current one or by extending the current contract. This way, the investor can maintain their existing position and continue it for a new period.

Rollover transactions can also be associated with loans. A loan rollover refers to a borrower entering into a new agreement to renew or refinance their existing loan. This allows the borrower to repay their current debt by obtaining a new loan before the original loan matures.

Rollover transactions provide investors and borrowers with the flexibility to maintain or restructure their current positions. However, rollover transactions may also involve costs and risks. For instance, in futures contracts, rollover transactions are often associated with transaction costs and spreads. Loan rollovers, on the other hand, may involve additional costs or changes in interest rates for a new agreement.

Rollover transactions enable investors and borrowers to manage their financial positions and maintain or restructure them according to their needs. However, rollover transactions require careful planning, analysis, and evaluation. Therefore, investors and borrowers should conduct thorough research and seek professional advice before engaging in rollover transactions.