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".


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.

  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Roll Forward

    To extend the expiration or maturity of an option or futures ...
  3. Position

    The amount of a security either owned (which constitutes a long ...
  4. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Swap

    A derivative contract through which two parties exchange financial ...
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