When Do Futures Contracts Expire? Cycles & Settlements

A futures contract is a standardized legal agreement between two parties to buy or sell a specific asset at a predetermined price on a designated future date. These financial instruments derive their value from an underlying asset, such as commodities, currencies, or stock indices. Futures contracts have a finite lifespan, with an expiration mechanism dictating when obligations must be fulfilled.

Expiration is central to understanding how futures markets function. Holding a futures contract implies a commitment that will eventually conclude. This defined end date necessitates specific actions from market participants. The expiration process ensures all contracts are eventually settled, leading to either a physical exchange of the underlying asset or a cash payment reflecting the contract’s value.

The Nature of Futures Expiration

Futures contracts are agreements for future delivery or settlement, requiring a definitive end date. The expiration date marks the final day a contract is valid, after which it ceases to exist as a tradable instrument.

Two important dates are the “last trading day” and the “expiration day.” The last trading day is the final opportunity to buy or sell a particular futures contract on an exchange. The expiration day, often shortly after, is when contract obligations are finally settled.

As a contract approaches expiration, its price can become more volatile, and liquidity may diminish. Traders must decide whether to offset their position, roll over into a contract with a later expiration date, or allow the contract to proceed to settlement.

Expiry Cycles for Different Futures Contracts

Expiration dates for futures contracts are determined by the exchanges on which they trade, varying significantly across different underlying assets. These dates follow specific patterns: monthly, quarterly, or seasonal cycles. The precise day within an expiration month also varies, often falling on a specific Friday or business day.

Many financial futures, such as stock indices like the E-mini S&P 500, follow a quarterly expiration cycle. These contracts expire on the third Friday of March, June, September, and December. This quarterly rhythm aligns with broader financial reporting periods, allowing market participants to align hedging or speculative strategies. Interest rate futures also adhere to quarterly cycles.

Commodity futures exhibit diverse expiration patterns, reflecting the production and delivery cycles of their underlying assets. Crude oil futures, for instance, have monthly expirations, providing continuous trading opportunities. Agricultural commodities like corn or soybeans have seasonal expiration cycles, with contracts expiring in months that align with planting, growing, or harvesting seasons. Gold futures, another example, have monthly expirations for nearby months, with additional listings for specific months further out.

Settlement Mechanisms at Expiration

When a futures contract reaches expiration, outstanding obligations must be fulfilled through a settlement mechanism. There are two primary methods: physical delivery and cash settlement. The choice of method depends entirely on the specific contract’s design and the nature of its underlying asset.

Physical delivery involves the actual transfer of the underlying asset from the seller to the buyer. This method is common for many commodity futures, such as crude oil, natural gas, metals, and agricultural products. For example, a seller of a crude oil futures contract would be obligated to deliver a specified volume of oil to a designated storage facility, while the buyer would take possession and pay the agreed-upon price. The clearinghouse facilitates this process by matching buyers and sellers and ensuring compliance with contract specifications.

In contrast, cash settlement involves a financial exchange rather than the physical transfer of an asset. This method is used when physical delivery is impractical or unnecessary, such as with stock index futures, interest rate futures, or certain foreign currency futures. At expiration, the final profit or loss is determined by calculating the difference between the contract’s initial price and its final settlement price. This net amount is then credited to or debited from the accounts of the respective parties. For instance, if a cash-settled contract is held to expiration, and the final settlement price is higher than the purchase price, the buyer receives a cash credit reflecting that difference.