If you`re new to the world of futures trading, you may be wondering how long a futures contract lasts. A futures contract is an agreement between two parties to buy or sell a specific asset at a predetermined price and date in the future. When it comes to the duration of a futures contract, there are a few factors to consider.
Expiration Date
The expiration date is the date on which a futures contract comes to an end. Every futures contract has an expiration date, which is typically the third Friday of the contract month. For example, if you have a futures contract that expires in May, the expiration date will be the third Friday in May.
Rolling Over
Futures traders can choose to roll over their contracts before the expiration date. Rolling over means closing out an expiring contract and replacing it with a new one with a later expiration date. This allows traders to maintain their position in the market without having to take physical delivery of the underlying asset. Rolling over is a common practice in futures trading.
Contract Month
The contract month is the month in which a futures contract is traded. Most futures contracts have multiple contract months available for trading. For example, a futures contract for crude oil might have contract months available for trading in January, February, March, and so on.
Closed Out
Futures contracts can also be closed out before the expiration date. This means that the contract is bought back or sold before it reaches its expiration date. This can be done to take profits or cut losses. When a contract is closed out, the trader is no longer obligated to fulfill the terms of the contract.
In summary, a futures contract lasts until its expiration date. Traders can choose to roll over their contracts before the expiration date or close them out early. The duration of a futures contract is determined by its expiration date and the availability of contract months for trading. Understanding the duration of a futures contract is an important part of futures trading and can help traders make informed decisions.