Roll forward is a strategy commonly used in derivatives trading. It involves the active and purposeful extension of the life of a derivatives contract and the closure of an expiring contract. Typically, the aim of roll forward is to update the terms of the existing derivative to better align with the current market conditions, such as extending the expiry date of the contract.

The process of rolling a derivatives contract forward begins by closing out the soon to expire contract by selling or buying out the derivatives contract. After the expiring contract is closed out, a new derivatives contract is then opened for the same underlying asset, but with a future expiration date. This can be done at any time prior to the expiration of the existing contract providing the terms of the new contract agree with the respective market conditions.

Roll forward is a commonly used strategy for derivatives contracts such as options, futures contracts and forwards. Options provide the buyer with the right to buy or sell a given asset at a predetermined price in the future, while futures contracts oblige the parties to perform their obligations. Lastly, forward contracts are customized contracts that cover the buying and selling of an asset at a later date at an agreed upon price.

This strategy can be beneficial to those trading derivatives, particularly if the market has become more favorable since they first entered into their existing contract. For example, if the price of the underlying asset has gone up, extending the term of their contract could lead to higher profits. Similarly, if the price has gone down, traders may choose to roll their existing contract forward, in order to reduce their losses.

Overall, roll forward is an effective strategy for those trading derivatives markets and provides an effective way for them to stay on top of the market, particularly if the market conditions have changed since they first entered into their existing contract. It should be noted, however, that this strategy can be risky as there is no assurance that the market will remain favorable and so traders should be aware of potential losses that could result from entering into a new derivatives contract.