# Roll Costs

> Rolling futures from one month to the next can cost or earn money. Learn how roll costs arise in contango and backwardation and how they affect futures ETFs.

Source: https://learn.tradelabsai.com/orders/roll-costs/  
Track: Orders and Execution · Level: Intermediate · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Roll Costs", https://learn.tradelabsai.com/orders/roll-costs/

Futures contracts expire, so anyone who wants to hold futures exposure for longer than one contract must roll: close the expiring contract and open a later one. Each roll has direct costs, such as commissions and the spread, and an indirect effect from the price difference between the two contract months. Over many rolls, these add up and can explain why a futures based investment performs very differently from the spot price it tracks.

## The two parts of roll cost

| Part | What it is |
|---|---|
| Transaction cost | Commissions and bid ask spreads on closing one contract and opening another |
| Curve effect (roll yield) | The gain or loss from the price difference between the near and far contracts |

### Transaction cost

Rolling means two trades. Rolling with a single calendar spread order, buying one month and selling the other as a package, usually costs less than two separate orders because the spread on the package is tight and you avoid the market moving between legs. See [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/).

### The curve effect

When later contracts trade **above** nearer ones, the market is in [Contango](https://learn.tradelabsai.com/futures/contango/). A long position rolls by selling the cheaper expiring contract and buying the more expensive later one. If the spot price stays flat, the later contract tends to drift down towards spot as it approaches expiry, and the long position loses value. When later contracts trade **below** nearer ones, in [Backwardation](https://learn.tradelabsai.com/futures/backwardation/), rolling a long position tends to add return.

**Example: Rolling in contango**
Crude oil front month trades at $75.00 and the next month at $76.20. A long investor rolls each month. If spot oil stays at about $75 for a year and the curve shape is similar each month, the investor repeatedly buys the next contract around $1.20 above where it ends up at expiry. That is roughly $1.20 a month, about 19% of $75 over a year, lost to the roll, even though oil's price did not change.

This simplified example ignores changes in the curve over time, but the direction is right: persistent contango is a drag on long futures holders.

## Who is affected

- **Commodity ETFs holding futures,** such as oil or natural gas funds. Long periods of contango have caused large underperformance compared with spot prices.
- **Volatility products based on VIX futures,** where the VIX futures curve is usually in contango, creating a strong drag on long volatility ETPs.
- **Long term futures traders** holding positions through many rolls.
- **Short positions** benefit from contango in the same way long positions are hurt.

See [Roll Yield](https://learn.tradelabsai.com/futures/roll-yield/) for how professionals measure this effect.

## Roll costs in stock index futures

Index futures usually trade slightly above spot because of interest rates minus expected dividends. Rolling a long index future costs roughly the financing rate minus dividends over the period, similar to what holding the stocks with borrowed money would cost. This is not a hidden loss so much as the price of leverage built into the contract.

## Managing roll costs

1. **Roll with spread orders** rather than two outright trades.
2. **Roll when liquidity has moved** to the next contract, usually a few days before expiry, not on the last day.
3. **Check the curve** before taking long term futures positions; persistent contango means you must beat the roll drag.
4. **Understand fund structures** before holding commodity or volatility ETPs for long periods.
5. **Consider later contracts or spot alternatives** when the front of the curve is very steep.

## Frequently asked questions

### What is a roll cost?

The cost of moving a futures position from an expiring contract to a later one, including trading costs and the effect of the price difference between the months.

### Why do commodity ETFs lose value when prices are flat?

Often because they hold futures in contango and lose value each time they roll into more expensive later contracts.

### Does rolling ever make money?

In backwardation, rolling a long position can add return because the later contract is cheaper and tends to rise towards spot as it nears expiry.

## Continue learning

- Next lesson: [Spread Costs](https://learn.tradelabsai.com/orders/spread-costs/)
- Previous lesson: [Financing and Overnight Costs](https://learn.tradelabsai.com/orders/financing-and-overnight-costs/)
- Related: [Financing and Overnight Costs](https://learn.tradelabsai.com/orders/financing-and-overnight-costs/): Holding leveraged positions overnight costs money. Learn margin interest, forex swaps, CFD financing, carry costs and how to include them in your trade plan.
- Related: [Rolling Futures Contracts](https://learn.tradelabsai.com/futures/rolling-futures-contracts/): Rolling moves a futures position from an expiring contract to a later one. Learn when to roll, how to use calendar spreads, roll costs and common roll schedules.
- Related: [Roll Yield](https://learn.tradelabsai.com/futures/roll-yield/): Roll yield is the return from futures converging toward spot as they near expiry. Learn how contango and backwardation drive it and how to estimate it.
- Related: [Contango](https://learn.tradelabsai.com/futures/contango/): Contango is when later futures trade above nearer ones or spot. Learn why it happens, how it erodes long commodity and VIX funds, and how traders use it.
- Related: [Backwardation](https://learn.tradelabsai.com/futures/backwardation/): Backwardation is when later futures trade below nearer ones or spot. Learn the causes, convenience yield, positive roll yield and what it signals about supply.
- Related: [Rollover](https://learn.tradelabsai.com/markets/rollover/): Rollover means moving a position into a later contract, or carrying a forex trade overnight. Learn how futures rolls and forex swaps work and what they cost.
- Related: [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/): A futures calendar spread buys one contract month and sells another. Learn bull and bear spreads, what moves them, seasonality and a worked crude oil example.