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Is there a spread cost to rolls
Posted: Sat Apr 14, 2012 7:54 am
by AceofAce
I was wondering if there is a spread cost when rolling to the next contract month. If there is, it means this cost is incurred at least 4 times per annum (12 times on some contracts, eg OIL). This would be a major cost and has to be taken into account in any backtest.
Posted: Sat Apr 14, 2012 10:46 am
by Roger Rines
There is commission cost for the exiting and entering contracts, and there is most often a difference is price, which affects cost.
Sometimes a process called "legging into the roll" can make a difference. This terms means to enter into the next contract earlier, and then waiting for a favorable reaction during the day to exit the older period contract.
If you are just thinking in terms of how it affects performance, add the commission cost, and assume price slippage in the transactions.