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How does expiration work with CFD instruments on MT4/MT5 accounts?

FOREX CLUB provides clients with the opportunity to trade CFDs on futures contracts as opposed to actual futures contracts (which are themselves traded on special exchanges).

Moreover, when it comes to trading such instruments, our system implements something known as merging/rolling. This means that when a contract ceases trading on the exchanges, we don't close any outstanding positions held by our clients. Rather, we give them the option of extending their contracts and keeping them open.

 The exchange sends price quotes for several contracts simultaneously. But clients are only able to open trades on one. When their liquidity starts to fall, we change it for another. It is that process of changing contracts that we call expiration.

 It wouldn't be possible for contracts to expire on the date they stop trading on the exchange as the liquidity would be too low. That's precisely why we are guided by liquidity and expire contracts when the volume on the current and subsequent contracts are more or less the same. This depends largely on our instrument liquidity providers since the exchange supplies us with price quotes, but we can't exceed our risk.

 

What happens upon expiration?

 For example, for a long position contract rolling over from September to October, traders will receive additional profit of 0.37 per barrel (75.86 - 75.49 = 0.37). In order to smooth out the impact, the trading result will be reduced by exactly this amount, with the spread at the moment of expiration also being charged. That means that the buyer's account will be charged the difference between the two contract prices ($0.37 per barrel) and the spread.

 

For short positions, the change in price flows will generate a loss of $0.37 per barrel. This loss will be compensated for by a credit of $0.37 to the trading account for every barrel included in the trade, however the spread will still be charged.

As such, the shift in CFD price flows from one futures contract to the next does not end up having a significant impact on your financial result, only reducing it by the amount of the spread at expiration.

 

Moreover, we would remind traders that the gap is not always visible on the chart: if there is a jump from 59 to 89 or (for example) from 1 to 99 within a one-minute candlestick (and this is possible if one of the prices was quoted at second 05 and the other at second 06), then the gap would not be visible on the chart (the candlestick for any individual time frame cannot be separated in two from across the gap), it would only be visible on a long candlestick.

 

The expiration process is described in detail in the Services Regulations (see Appendix 1), which is part of the International Financial Services Agreement and available here.

The expiration date for each individual CFD instrument is determined by the Company and specified on its website in the Instrument Specification.

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