Front Month

AAA

DEFINITION of 'Front Month'

Used in futures trading to refer to the contract month with an expiration date closest to the current date, which is often in the same month. In other words, this would be the shortest duration contract that could be purchased in the futures market. Contracts that are a month or more behind the front month contracts are referred to as back month contracts.

INVESTOPEDIA EXPLAINS 'Front Month'

Front month contracts are generally the most liquid of futures contracts, in addition to having the smallest spread between the futures price and the spot price on the underlying commodity. Use of front month contracts requires an increased level of care, since the delivery date may lapse shortly after purchase, requiring the buyer or seller to actually receive or deliver the contracted commodity. Front month contracts are often paired with back month contracts to create calendar spreads.

RELATED TERMS
  1. Calendar Spread

    An options or futures spread established by simultaneously entering ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  3. Back Month Contract

    A type of futures contract that expires in any month past the ...
  4. Delivery Date

    1. The final date by which the underlying commodity for a futures ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...
Related Articles
  1. Options & Futures

    An Overview Of Commodities Trading

    Commodities markets, both historically and in modern times, have had tremendous economic impact on nations and people. Investing in commodities can quickly degenerate into gambling or speculation ...
  2. Options & Futures

    Minis Provide Low-Cost Entry To Futures Market

    These contracts provide access to commodities without a huge capital commitment.
  3. Investing Basics

    How To Invest In Commodities

    Find out which futures, options or funds will be your perfect commodity portfolio fit.
  4. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  5. Options & Futures

    A Guide To Investing In Oil Markets

    Find out how to take advantage of this market without having to open a futures account.
  6. Options & Futures

    Options On Futures: A World Of Potential Profit

    There's one simple hurdle in the transition from stock to futures options: learning about product specifications.
  7. Options & Futures

    Commodities That Move The Markets

    Find out how the everyday items you use can affect your investments.
  8. Options & Futures

    Trading Calendar Spreads In Grain Markets

    Futures investors flock to spreads because they hold true to fundamental market factors.
  9. Forex Strategies

    The 10 Riskiest Investments

    Investors seeking high returns must also be prepared for high risk. Here are ten of the riskiest investments available.
  10. Options & Futures

    Was Buffet Right about Derivatives as WMDs?

    Why Warren Buffet described derivatives as weapons of mass destruction, and when can they be helpful or harmful?

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center