Choosing Futures Contracts and Managing Rolls in Trading Systems
Summary
This document describes how a futures system can select contracts and move positions as delivery months change. It frames contract choice around liquidity, trading costs and calendar spreads, volatility and kurtosis, contango measurement, price action, and seasonal patterns. It also considers whether a system should trade only the front contract or hold multiple maturities. To assess contango, it proposes comparing the held contract with a nearer delivery when available, otherwise using spot or a subsequent delivery as a reference.
The implementation discussion covers roll timing, price stitching, execution choices, and system states. Stitched histories need care: cumulative adjustments can make distant historical price levels unrealistic, so percentage returns may become misleading. Execution may use passive trades, a spread order, separate legs, or closing and reopening positions. The document lays out a state-based workflow to keep signals, market data, and positions aligned through a roll. It presents decision factors and operational patterns, not empirical comparisons establishing one universally best contract, schedule, or execution method.
Key ideas
- Contract selection should account for liquidity, costs, spread behavior, volatility, and seasonality.
- Contango can be assessed against a nearer contract, spot, or a later delivery when necessary.
- A stitched futures history can distort old price levels and make percentage returns unreliable.
- Rolling can be executed passively, with a spread order, through separate legs, or by closing and reopening.
- A trading system should coordinate roll states, signal prices, and position transitions.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.