Futures Trading Last
A futures contract is an agreement to buy or sell a good at a specified date in the future at a price that’s agreed upon today. These agreements allow traders to hedge against the risk of changes in prices or exchange rates. They are also used to speculate on the future direction of prices or indexes. More than 29 billion futures contracts were traded in 2021 alone, and they remain a vital part of the financial industry. The most common futures are commodities, currencies and interest rates, but they can be purchased or sold on a range of intangible products such as stocks, indexes and energy.
Most of these futures are settled with a cash payment, although non-financial commodities such as grains and livestock often require physical delivery. This means that the holder of the long position must take possession of the underlying commodity and cover costs for material handling, storage and insurance. This is expensive, so most traders roll their positions prior to expiration.
When you open a futures trading, it’s important to understand how the contracts work. Most traders are divided into two groups: hedging professionals, who have an actual interest in the underlying asset (such as coffee or oil) and are seeking to hedge against price fluctuations; and speculators, who don’t have any ownership of the underlying asset but are betting on market movements for profit.
How Long Does Futures Trading Last?
In either case, you can find the last day of trading for most futures products on your broker’s website or by searching on the exchange where the product is traded. The exchange sets the standards for each product and determines the last trading day.
The exchanges also publish daily charts and analysis of the most active markets, so it’s easy to stay informed on a variety of different products. The charts can be filtered by time, volume, volatility and other factors to help you focus on the most active trading areas.
Traders are typically required to put up a small percentage of the total value of the futures contract when they make their initial deposit. This requirement is known as margining and helps to limit the amount of money a trader can lose if the market moves against them. Margin requirements vary from broker to broker, but they always involve the use of leverage, which magnifies returns and losses.
The last day of trading is a crucial day for all traders, but especially for those who plan to roll their positions over. To do so, they must sell their open positions in the front-month futures contract and simultaneously purchase a longer-dated contract. The idea is to avoid taking delivery of the underlying commodity and to save transaction fees. This is done by comparing the volume and liquidity of the front-month contract to that of the further-out months. A drop in the front-month contract’s liquidity and volume typically means it’s time to roll over. It’s also possible to make this move on the expiration date, but this is typically riskier because it can lead to low liquidity on the last day of trading.