I am new in the future market. I work in a company which buys around 120,000 tonns of sugar annually. At this point i want to know how the rolling works. As far as i understand I need to buy the early contract and when it is about to expire, i have to sell it and buy the late contract. However I have a risk of the spread getting bigger. The other risk is that the market is illiquid and i wont be able to buy the late contract. How do you guys handle it? is it the only way to do the rolling? is there a possibility of leaving a spread market order which can buy and sell instantaneosly and simultaneously? i would appreciate any answer.
If you hedged all of it you would need to do 120,000/50 = 2400 contracts/year which means you are a small player. You could try all kinds of fancy stuff or you could just go with the floor roll. There is just a day when everyone moves into the next contract and you just go along. I wouldn’t worry about the market getting illiquid (open interest is > 500,000 contracts).