Back Month Contract

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DEFINITION of 'Back Month Contract'

A type of futures contract that expires in any month past the front month futures contract. The price of the first back month futures contract is often used along with the front month futures price to calculate the calender spread.

Also referred to as a "far month contract".

BREAKING DOWN 'Back Month Contract'

The liquidity of a back month futures contract will constantly increase as it approaches expiration. Investors that employ an auto-roll strategy will roll over their futures positions once the daily volume of the first back month futures contract exceeds the daily volume of the front month futures contract.

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RELATED FAQS
  1. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  2. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  3. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  4. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  6. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>

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