WHAT IS 'Back Months'

Back months are the available futures contracts for a particular commodity that include expirations or delivery dates furthest into the future. These are also referred to as deferred futures or forward months.


Back months for a given commodity are any set of futures contracts that expire in a different month than the front month, which is the next futures contract to expire.  

A futures contract is a legal agreement to buy or sell a particular commodity or financial instrument at a predetermined price and time in the future. This differs from an options contract which includes the option, but not the obligation to buy or sell an asset at a specified time. A back month refers to the future contract furthest away from the front month, however as time passes a back month contract eventually becomes a front month contract.

For example, let’s say you would like to buy wheat futures. It is April 15 and the next wheat future contracts expire on May 30. You anticipate the price of wheat to increase in June, so instead of buying the front month contract of May, you buy a contact as far out as possible, in this case November. This November contract is a back month contract.

Implications of Back Months

Back months may include an identical settlement price as that of the front month expiring in the near term, however because the back month contract has a longer time to expiration, it will likely trade at a different price.  

The ability to sell a futures contract at or near its value increases as it gets closer to its expiration date. In general, analysts believe that the prices of front month contracts are more accurate because the time of delivery for back months is further in the future, and therefore the prices of back month contracts vary.

Back month contracts may give some indication of what will happen in the markets, however they are also known to be more risky. Back month contracts are less liquid, and liquidity corresponds to risk. Due to this risk, back month contract premiums are typically more expensive than front month contract premiums.

Analysts typically compare the prices between a front month contract and a back month contract of the same asset to calculate what’s called a calendar spread, which is established by simultaneously entering a long and short position on the same underlying commodity at the same strike price but with different delivery months.

  1. Furthest Out

    Mainly pertaining to options and futures, this is the options ...
  2. Front Month

    Front month refers to the futures contract in each market with ...
  3. Current Delivery

    A type of futures contract that requires the delivery of the ...
  4. Physical Delivery

    Physical delivery is a term in an options or futures contract ...
  5. Spot Delivery Month

    The nearest month when a futures contract matures. The spot delivery ...
  6. Futures

    A financial contract obligating the buyer to purchase an asset ...
Related Articles
  1. Trading

    Futures Fundamentals

    This tutorial explains what futures contracts are, how they work and why investors use them.
  2. Investing

    3 Reasons to Use ETF Options Over Futures (SPY, QQQ)

    Learn about exchange-traded fund (ETF) options and index futures, and why it might be a better decision to use ETF options instead of futures.
  3. Investing

    What is a Forward Contract?

    A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
  4. Investing

    Investing in Crude Oil Futures: The Risks and Rewards

    Learn about the risks and rewards of trading oil futures contracts. Read about a few strategies to limit the risk in trading oil futures contracts.
  5. Trading

    Why Forward Contracts Are The Foundation Of All Derivatives

    This article expands on the complex structure of derivatives by explaining how an investor can assess interest rate parity and implement covered interest arbitrage by using a currency forward ...
  6. Trading

    Curious About Stock Index Futures? Read This First

    You've mastered investing in individual stocks...now what? If you like a challenge, consider stock index futures. Just be careful.
  1. Forward Contracts vs. Futures Contracts

    While both forward and futures contracts allow people to buy or sell a specific asset at a specific time at a given price, ... Read Answer >>
  2. How can I calculate the notional value of a futures contract?

    Learn how the notional value of a futures contract is calculated, and how futures are different from stock since they have ... Read Answer >>
  3. How do futures contracts roll over?

    Learn about why futures contracts are often rolled over into forward month contracts prior to expiration, and understand ... Read Answer >>
  4. What is the difference between options and futures?

    An option gives a buyer the right, but not the obligation to buy or sell an asset, A futures contract obligates the buyer ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center