Switch

DEFINITION of 'Switch'

A futures-trading strategy involving the offset of one contract with entry into another position that has nearly identical details but a longer expiration. Commonly referred to as a "roll forward".

BREAKING DOWN 'Switch'

A switch is used by investors wishing to maintain their current positions in contracts that are nearing expiry.

For example, let's say that it is currently Jan 2004, and an energy company that will have 100,000 barrels of oil to sell in Jun 2006 wants to hedge its position. However, the company does not simply buy the Jul 2006 oil futures contract because the company deems this contract too illiquid. It requires a contract to have a delivery period of no more than 13 months in advance. A possible hedging strategy for the company is to short the appropriate number of Jul 2005 contracts, in Jun 2005, close out the Jul 2005 position, and then switch to the Jul 2006 contract.

RELATED TERMS
  1. Front Month

    Used in futures trading to refer to the contract month with an ...
  2. Forward Contract

    A customized contract between two parties to buy or sell an asset ...
  3. Back Months

    The available futures contracts for a particular commodity that ...
  4. Delivery Date

    1. The final date by which the underlying commodity for a futures ...
  5. Futures

    A financial contract obligating the buyer to purchase an asset ...
  6. Forward Market

    An over-the-counter marketplace that sets the price of a financial ...
Related Articles
  1. Term

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  2. Investing Basics

    Investing in Crude Oil Futures: The Risks and Rewards

    Learn about the risks and rewards of trading oil futures contracts. Read about a few strategies to limit the risk in trading oil futures contracts.
  3. Options & Futures

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  4. Insurance

    Futures Fundamentals: Strategies

    Essentially, futures contracts try to predict what the value of an index or commodity will be at some date in the future. Speculators in the futures market can use different strategies to take ...
  5. Professionals

    How To Calculate Margin On The Series 3 Exam

    Learn what you need to know about margin to pass your Series 3 exam.
  6. Products and Investments

    Divorce and Annuities: What Clients Need to Know

    Divorce can be the most financially devastating event in a person’s life. Here’s what your clients need to know about handling annuities in a divorce case.
  7. Markets

    Crude Oil Prices: Comparing Future Price Vs. Current Market Price

    Discover the differences between oil futures market prices and oil spot market prices and what leads to the differences between the two.
  8. Investing

    The Best Strategy for Generating Reliable Income in a High-Risk Market

    <p>The covered call strategy is a reliable way to generate income in your investment account on a monthly basis. Basically, this investment ...
  9. Options & Futures

    Beginner's Guide To E-Mini Futures Contracts: E-Mini Specifications

    Each e-mini contract has certain specifications as outlined by its host exchange. Ticker SymbolEach contract has a ticker symbol, or an arrangement of letters representing the specific contract. ...
  10. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
RELATED FAQS
  1. What is the difference between forward and futures contracts?

    Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell ... Read Answer >>
  2. How can a futures trader exit a position prior to expiration?

    A futures contract is an agreement to buy or sell a commodity at a pre-determined price and quantity at a future date in ... Read Answer >>
  3. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ... Read Answer >>
  4. How do the investment risks differ between options and futures?

    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
  5. What is a forward contract against an export?

    Understand forward exchange contracts in exporting, and learn the purpose of using a forward contract and its advantages ... Read Answer >>
  6. What does a futures contract cost?

    Learn about values of futures contracts and the initial margin a trader must place in an account to open a futures position, ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center