I remember the first time I started futures trading, and the 2nd day my platform popped up and said something to the effect of Front Month in Trading has changed, do you want us to roll your products?”. I had absolutely zero idea what it meant. So I clicked Yes, because it seemed right. I immediately then went and looked up what Front Month means.
Futures Contracts Have Delivery Dates
So the first thing to keep in mind is that futures contracts all have delivery dates. Some are monthly, some quarterly. But there are dates attached to them. Unlike a stock which you can hold as long as you want, Futures contracts are much more like Options contracts in the equity world, where there is a date that will pass when that contract is no longer valid. Slightly different, but you get the point – there are dates attached.
Front Month – It’s Simple
Basically the “Front Month” is the nearest contract date. For products which have monthly contracts, Crude Oil for example, it will be the current or next month. For Treasuries, they are quarterly, and it’ll be the next quarters date.
A Front Month By Any Other Name
The other common term used is “Spot” – spot market, spot contract, just “spot”. Near is the other term, but not often used.
Why It Matters
Well, a few reasons. The Front Month has the most volume traded. You’ll probably realize you aren’t looking at the front month anymore if all of a sudden the Crude Oil contract you were trading yesterday has next to zero volume. As well, most platforms will alert you. It’s much easier to trade a product that has volume.
If you are in a trading evaluation, most of them have a rule that you can only trade the Front Month. Don’t bust your evaluation because you traded a contract way in the future, or one that just passed.
How To Know What The Current Front Month Is
If you really want to keep tabs on it, visit the CME Group site, look up your product, and it will show the volume by month for the contracts. Highest volume = front month.
As well, pro tip, download the CME Group app. Track the products you trade, and set it to display the Front Month (rather than picking specific months). That way you can look at the app and it’ll always show you what the front month is.
Also, most platforms will alert you that the contract has rolled forward, and ask if you’d like it to roll forward any charts you have.
Conclusion
Not much to conclude on this one. Understanding the Front Month is easy, keeping tabs on what it is is more important. Over time you get used to it, and you’ll be anticipating when the months roll over. Use the CME Group app to keep tabs as well.
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Risk Disclosure:
Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
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Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
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