Understanding Futures Expiry
Futures contracts have expiration dates, indicating the last trading day for a particular contract. After the expiry date, the contract ceases to exist, and traders must settle their positions.
Importance of Expiry Dates
- Position Closure: Traders holding futures contracts must close or roll over their positions before the expiry date to avoid physical delivery or cash settlement.
- Price Movements: As contracts near expiry, trading activity may increase, impacting contract prices and market volatility.
Futures Rollover
- Rolling Positions: Traders can roll over their futures positions by closing the expiring contract and simultaneously opening a new contract for a later expiry date.
- Avoiding Delivery: Rollover helps avoid physical delivery obligations and allows traders to maintain exposure to the underlying asset.
Expiration Process
- Settlement Methods: Futures contracts can be settled through physical delivery or cash settlement, depending on the contract specifications.
- Contract Specifications: Each futures contract has unique expiration and settlement terms defined by the exchange.
Managing Expiry in Trading
- Awareness: Traders should be aware of expiry dates and plan their trading strategies accordingly to avoid any potential disruptions.
- Rollover Strategy: Plan and execute a rollover strategy ahead of expiry to ensure a smooth transition and avoid unexpected market movements.
Disclaimer
- The information provided regarding futures expiry is for educational purposes and should not be considered as financial advice.
- Traders should refer to their broker or exchange for specific contract expiry details and trading guidelines.
