This is neither for actual charges for the client, they are simply offsetting the price movement of the instrument they are trading for a net-zero effect on their PnL
The contract roll in particular is so that we can move to a better liquidity provider, so it is a net benefit to the client that we do this and compensate for any difference in the price feed.
Clients may notice two types of balance adjustment that they may not have seen previously:
A ‘Dividend’ adjustment – previously when a stock or stock index had a dividend entitlement in the underlying market, the dividend amount was incorporated into the swap/financing charge for the product for that day. However, it is more common amongst brokers that dividends are charged as a separate balance entry – which also makes it easier to refer back to and see historically, as well as separating out the financing costs into their own entry.
We are no longer including the dividend amount into the swap value but will be charging it as a deposit/withdrawal with a comment such as: “US500 Dividend #1234” where the #1234 refers to the trade ticket number that the dividend relates to.
A dividend is a net-neutral adjustment in terms of profit, because the underlying market will naturally adjust in price to reflect that the dividend entitlement event has passed, and new holders of the underlying would not be entitled to receive that dividend from that point onward. So, if someone is holding a long position they will receive the dividend, but the price of the instrument will adjust lower by the equivalent amount at the same time; for a short position it is the opposite – the price will adjust lower benefiting the position, but the trader would be charged the dividend.
A ‘Contract Roll’ adjustment – is an adjustment we have used previously when changing between two different liquidity providers on Index and Energy products, when there is a difference in the price between those two liquidity providers. We make this adjustment because we do not want any clients to be affected by the change in price feed between the providers.
For Index and Energy products, typically no two pricing/liquidity providers will have the exact same price for their product; instead, they each calculate a ‘fair value’ for that market using a proprietary calculation - usually based on an underlying asset such as futures contracts - this allows them to create a price for that product as a spot/cash settled CFD instead of a futures product.
A Contract Roll adjustment will be issued when we need to make a change to the provider who prices one of our products. This adjustment will be calculated so that when the price feed is changed to the new provider, the difference in is fully offset by a balance adjustment – so that no client is made better off or worse off from the change in price feed. The adjustment will be a balance entry that looks like “Contract Roll US30”.
So, where we move to a new provider for US30 for example – if the new contract has a fair value that is 13.24 points higher than the current provider’s price, we will make an adjustment of -13.24 points for any long positions and +13.24 points for any short positions, and the fair value of our contract will adjust upwards by 13.24 points relative to where it was previously when the market re-opens with the new provider pricing it.
Note: It is important to note that the dividend values we receive are provided to us by our Liquidity Providers so may differ slightly from other brokers