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rolling positions forward

Rolling positions forward refers to the extension of an FX forward contract. It is achieved by closing out a soon-to-expire contract and opening another one at the current market price for the same currency pair with a longer-dated maturity. The resulting gains or losses on the expiring forward are charged or refunded by the liquidity provider to the company.

For example, a company holds an EUR-USD forward contract covering a USD 1 million payment to a supplier. The contract expires in a few weeks, but the supplier delays delivery for three months, so the company wants to roll the contract over to cover these additional three months. Suppose the initial forward rate was 1.10 and the new forward rate is 1.12.

The contract issuer will close the initial contract under which the company needs EUR 909,000 to buy USD 1 million. With the new forward rate of 1.12, the company will have to pay EUR 892,000 on the new maturity date. By rolling over the forward, the liquidity provider should refund the hedger with EUR 17,000.