Overview: Futures Contract Months
The phrase "delivery month" is a major feature of a futures contract that specifies when the contract will expire and when the underlying asset will have to be provided or cleared. The exchange where the futures contract is transferred also sets a delivery address and a delivery schedule within the delivery month.
The futures contract month is an important concept in Forex markets, and in this guide, we will review its meaning, definitions, and codes.
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The Definition of the Futures Contract Month
When a derivatives contract ends, the underlying asset must be transferred or paid. The month in which this is due is known as the contract month or the delivery month. Exchanges indicate delivery times, and delivery months are indicated by a single, unique letter in the contract signature. Traders would close their positions as near to the delivery month as practicable, at which point, the underlying asset must be taken or delivered.
Several futures contracts are settled in cash rather than requiring the physical delivery of a product.
What is the Delivery Month?
Futures contracts are commitments between two parties to exchange an asset in the future, such as a commodity or a currency. When the contract expires, the purchaser agrees to purchase the underlying asset, while the vendor agrees to release it. Some commodities can be provided at any time of year, while others are only available during specific months. The delivery month in a futures contract is merely the month specified in the contract for cash payout or tangible delivery. Any item for which there is a market is referred to as a commodity. Bonds and stocks, rare metals, fuel, wheat, sugarcane, and legumes are all examples.
Cocoa, for example, will only be delivered in the months of March, May, July, September, or December. As previously stated, certain goods can be provided all year.
List of Contract Month Codes
- January: F
- February: G
- March: H
- April: J
- May: K
- June: M
- July: N
- August: Q
- September: U
- October: V
- November: X
- December: Z
The contract's delivery months are associated with a specific letter and are listed sequentially, beginning with January ("F") and concluding with December ("D") ("Z").
As futures contracts are transacted on markets, the delivery date will be displayed on the marketplace. This is the deadline by which a commodity futures contract must always be delivered. A letter on the ticker indicates the delivery date. Despite the absence of letters, the coding scheme is alphabetical, with "Z" matching December.
Conclusion
Knowing about futures contract months is crucial for every trader and investor in the Forex and commodities markets. These contract months, also known as delivery months, identify the specific time when the underlying asset of a futures contract must be delivered or settled. Each month in the calendar is denoted by a unique letter code from January ("F") to December ("Z"). Understanding these codes and their significance in the trading cycle is essential in the creation of effective trading strategies.
FAQ’s
Are futures contracts monthly?
Contract cycles are periods during which futures contracts trade on exchanges. There is a one-month (near month) contract cycle, a two-month (next month) cycle, and a three-month (far month) contract cycle for stocks and index futures.
Which month is a next-month contract?
Typically, futures contracts have a 3-month trading cycle - a near-month contract (which is the first month), a next-month contract (which is the second month), and a far-month contract (which is the third month). A new contract is introduced on the trading day following the expiry of the near-month contract.
What does a front-month contract mean?
The front month of a futures or options contract, also known as "near" or "spot," is the expiration date that is closest.
What is a back-month contract?
A "back month" is a term used in commodity futures markets to describe a futures contract with a relatively distant delivery date.
