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. Front Month

    Front month refers to the futures contract in each market with ...
  2. Back Month Contract

    A type of futures contract that expires in any month past the ...
  3. Futures Contract

    An agreement to buy or sell the underlying commodity or asset ...
  4. Current Delivery

    Current delivery is a specific type of futures contract that ...
  5. Futures

    A financial contract obligating the buyer to purchase an asset ...
  6. Contract Unit

    A Contract Unit is the actual amount of the underlying asset ...
Related Articles
  1. Trading

    Futures Fundamentals

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

    Is USO a Good Way to Invest in Oil?

    The United States Oil Fund is better suited to short-term investors who actively manage their portfolios.
  3. 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.
  4. Investing

    How to Trade Futures Contracts

    Futures is short for Futures Contracts, which are contracts between a buyer and seller of an asset who agree to exchange goods and money at a future date, but at a price and quantity determined ...
  5. Trading

    Advantages Of Trading Futures Over Stocks (APPL)

    We look at the top eight advantages of trading futures over stocks.
  6. Trading

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.
  7. Investing

    Bank of America Shares Seen Rising 8% Short Term

    Shares of BofA have outperformed the broader S&P 500 in 2018, up by nearly 2%.
  1. 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 >>
  2. How do S&P 500 futures work?

    Learn about the mechanics of S&P 500 futures contracts, a type of stock index future introduced by the Chicago Mercantile ... Read Answer >>
  3. Why do companies enter into futures contracts?

    Learn how companies use futures contracts to hedge their exposure to price fluctuations as well as for speculation. Read Answer >>
  4. What is the difference between open interest and volume?

    Learn how to interpret the relationships between price, volume and open interest in the options and futures markets. Read Answer >>
  5. What types of futures contracts are typically sold on an exchange?

    Explore the wide variety of available futures contracts traded on exchanges, which range from agricultural commodities to ... Read Answer >>
Trading Center