What is front month and back month futures?
In the commodity futures markets, the term “back months” refers to the futures contracts whose delivery dates are relatively far in the future. By contrast, so-called front months are those closest to the present date.
It is the contract that will expire first (often, but not always, within the next month). The near month is also called the prompt month, the front month, the lead month, and the first nearby.
Definition of Back Months
“Back months” is used to refer to futures contracts that have a delivery date that's due far into the future. Back months is generally known to be a popular term in commodity trading.
Futures contract have a maximum of 3-month trading cycle – the near month contract(which is the 1st month ) the next month contract (which is the 2nd month ) and the far month contract (which is the 3rd month ). A new contract is introduced on the trading day following the expiry of the near month contract.
At Topstep®, we define the front-month as the contract that currently has the most volume, and we require traders to be in the front month. Markets that have more participation and volume have more liquidity. With more participation, traders can get in and out of positions with greater ease, reducing your overall risk.
A front month is the nearest expiration date for a futures or options contract. The front month represents the shortest length of time for which the contract can be purchased. Front months are typically the most heavily traded and most liquid options and futures contracts.
Example of a Front-Month Contract
The current month is March, and the front-month contract for gold is April. The trader buys the April contract for $1,800 per ounce, expecting the price of gold to increase by the expiration date in April, also known as the delivery date.
Traders will determine when they need to move to the new contract by watching volume of both the expiring contract and next month contract. A trader who is going to roll their positions may choose to switch to the next month contract when volume has reached a certain level in that contract.
If an options contract position is not squared off before the expiration date, the trader can lose the total premium and any taxes and brokerage charges paid. You can utilize leverage to make purchases or sales during the trading day with an intraday (MIS/CO) order (up to 5 times the money in your account).
And unlike stocks, futures contracts do expire. The expiration date is the last day a contract can be traded, and expiration cycles can be monthly or quarterly. Keep in mind that different products follow different expiration cycles. To view all expiration cycles in thinkorswim, go to the Trade tab> All Products.
What is the 2 rule on Topstep?
In an effort to protect our firm and our traders, we will not allow market participation when a product is trading within 2% of a Price Limit. This Prohibited Conduct is enforced in the following accounts: Express Funded Account™, Legacy Funded Account, Pro Account®, & Premium Funded Account®.
If, while trading, the account balance falls below the minimum account balance displayed on your Trader Dashboard, you will be pulled from your trades right away, your account will be liquidated, and the rule will be broken. The Maximum Loss Limit value is calculated and set at the end of the trading day.
Traders will receive 100% of the profits from payouts, up to $10,000. After the first $10,000 of funds have been received by the trader, the profit split will become 90/10, with the trader receiving 90% of payouts and Topstep® retaining 10% of the requested payout.
- January – F.
- February - G.
- March -H.
- April -J.
- May - K.
- June - M.
- July - N.
- August - Q.
There are two ways to end your position in a futures contract before its expiration date. The first is to sell the contract to someone else. This will end your position, although it doesn't end the contract. The second, and more common method, is called "closing out."
Key Takeaways. Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market. Backwardation can occur as a result of a higher demand for an asset currently than the contracts maturing in the coming months through the futures market.
Settlement
Settling a futures contract involves terminating the contract by clearing the payments arising out of the position held. Unlike offsetting or rolling over, the settlement is done on the expiry date. The settlement of futures contracts can be done through physical settlement or cash settlement.
You can choose to exit your index futures contract before the date of expiry if you believe that the market will rise before the expiry of your contract period and that you'll get a better price for it on an earlier date.
- January – F.
- February -G.
- March – H.
- April – J.
- May – K.
- June – M.
- July – N.
- August Q-
Summary. The front month in the futures market is the contract with the shortest time to expiration. It is the most liquid month, meaning it is the easiest to trade and has the lowest trading costs. In this blog, we will discuss what a front month is, how it works, and provide some examples for better understanding.
What is single month?
Single Month is defined as the position held in any given contract month outside of the spot period effective date. For example, a CBOT December 2023 Corn futures contract has a single month limit of 57,800 net futures-equivalent contracts prior to the spot month effective date.
You can simply choose to ignore the contract and the contract expires on the expiry date. However, under a Futures contract, you are required to fulfil the contract on the expiry date. You cannot let the contract expire.
Failure: An Insufficient Commercial Need
Some new contracts historically have failed because there was an insufficient need for commercial hedging. This occurred when economic risks were not sufficiently material or contracts already provided sufficient risk reduction.
What are the trading hours for futures? Futures markets are open virtually 24 hours a day, 6 days a week. But keep in mind that each product has its own unique trading hours.
- Establish a trade plan. The first tip simply can't be emphasized enough: Plan your trades carefully before you establish a position. ...
- Protect your positions. ...
- Narrow your focus, but not too much. ...
- Pace your trading. ...
- Think long—and short. ...
- Learn from margin calls. ...
- Be patient.
