Understanding Expiration and Futures Contracts Months
By nature, a futures contract is a perishable security. It features a distinct expiration date when the legally binding agreement is settled. Upon expiration, the contract ceases to be tradable on the open market.
The concept of expiration makes futures contracts finite instruments, different from forex pairs or stocks. If you’re going to engage these exciting products, then understanding how futures contracts months relate to expiration is vital to your success as a trader.
During Which Futures Contracts Months Does Expiration Occur?
In the same fashion that each futures product is assigned a symbol and quantity, every listing has an expiration date. This date is listed in a contract’s specifications and represents the end of the contract’s tradable life cycle. No matter what futures product you trade, there will come a time when it’s no longer a valid financial instrument.
When a contract reaches its expiration date, a process known as settlement commences. Settlement is the procedure conducted by the exchange for closing out all open contracts. Settlement comes in two basic forms:
- Physical delivery: The trader is required to either assume possession or produce a specified quantity of the contract’s underlying asset, such as bushels of corn.
- Financial: The trader’s account balance is adjusted to reflect realized gains or losses at expiration.
If you’re going to trade futures, it’s important to understand your contract’s expiration and settlement procedure. Aside from the two types of settlement, there are several kinds of expiration to be aware of:
- Monthly: Contracts that expire on a monthly basis offer 12 unique listings for each calendar year. Typically, traders focus attention on the front-month issue, which is one month ahead of the present. In addition, some contracts feature a schedule that is largely monthly but allows for variance. An example of this phenomenon is the assigned expiration for the Chicago Mercantile Exchange’s (CME) full-sized gold listing.
- Quarterly: Quarterly contracts are offered once every three months, or four times per year. These issues are useful in the application of longer-term trading strategies because liquidity is present even though expiration may be further out.
- Seasonal: Seasonal expirations are typically implemented with respect to the production schedule of the underlying asset. For instance, seasonal expiration is common for ag commodities subject to planting and harvest.
The CME provides participants with a wide variety of products designed to aid in the pursuit of almost any financial goal. Here are the expiration types, settlement procedures, and calendar futures contracts months when several of the most popular “come off the board”:
|Product||Expiration||Settlement||Futures Contracts Expiration Months|
|E-Mini S&P 500||Quarterly||Financial||March, June, Sept., Dec.|
|E-Mini DOW||Quarterly||Financial||March, June, Sept., Dec.|
|E-Mini NASDAQ||Quarterly||Financial||March, June, Sept., Dec.|
|Euro FX||Quarterly||Financial||March, June, Sept., Dec.|
|Canadian Dollar FX||Quarterly||Financial||March, June, Sept., Dec.|
|Japanese Yen FX||Quarterly||Financial||March, June, Sept., Dec.|
|WTI Crude Oil||Monthly||Deliverable||Jan. through Dec.|
|Henry Hub Natural Gas||Monthly||Deliverable||Jan. through Dec.|
|Gold||Variable||Deliverable||Feb, April, June, Aug., Oct., Dec.|
|Silver||Variable||Deliverable||Jan., March, May, Sept., July, Dec.|
|Corn||Seasonal||Deliverable||March, May, July, Sept., Dec.|
|Soybeans||Seasonal||Deliverable||Jan., Mar, May, July, Aug., Sept., Nov.|
Although futures are standardized, all expiration dates are not the same. To avoid any unexpected liabilities associated with delivery or financial settlement, it’s imperative to be aware of the futures contracts’ months of expiration. Fortunately, you can accomplish this task by simply referencing a contract’s specs.
Be Ready for Expiration!
Whether you’re a hedger or speculator, contract expiration and settlement can have major impacts on your trading operation. To stay current on what contract expiration may mean for your trading strategy, become a dt Insider. Featuring actionable trade recommendations and a daily market overview, it’s a valuable resource for dealing with expiration on your terms.