What is the 'Spot Delivery Month'

The spot delivery month is the nearest month when any futures contract for a given commodity may mature.

Breaking Down 'Spot Delivery Month'

The spot delivery month, also nearby month or front month, is the earliest possible month a futures contract may become deliverable, depending on what commodity the contract covers. A futures contract for a given commodity can only mature, or deliver, in certain months of the year. These are the delivery months. For example, the delivery months for orange juice futures contracts are February, March, May, July, September and November. Heating oil futures contracts, on the other hand, can be written to expire in any month.

The very next delivery month is the spot delivery month for that commodity. If the current month is August, the spot delivery month for orange juice is September. If the expiration date has not yet passed on the current month's heating oil futures contracts, then the spot delivery month for heating oil is August. If the date has passed, the spot delivery month for heating oil is September.

What the Spot Delivery Month Means for the Price of the Commodity

The trading activity of spot delivery month contracts determines the spot price, or current market value, of the underlying commodity. The spot delivery month generally sees the highest trading volume. When investors check the spot price of gold, for example, what they are looking at is a number reflecting the value at which spot delivery month gold contracts are currently trading.

What Spot Delivery Month Means for Investors

Investors interested in futures markets need to understand the fundamental differences between futures and stocks. When investors buy futures contracts, they are entering into an agreement to either receive or physically deliver a specified amount of the commodity in the delivery month for that contract.

As expiration nears, futures investors who do not actually want to receive or physically deliver the commodity begin to unload their positions in spot delivery month contracts. If they do not exit in time, they will be on the hook to either receive or deliver the commodity, though some contracts are deliverable in cash. Futures investors rely on competent brokers to ensure that they are never stuck holding a futures contract when it expires.

The Speculative Limits on Spot Delivery Month Contracts

The US Commodity Futures Trading Commission (CFTC) can limit the size of speculative positions in futures contracts.  The CFTC typically limits positions in spot delivery month contracts more strictly than in contracts that expire later to prevent excessive speculation and price distortion, is the as the commodities become deliverable. Limits are set based on the actual physical supply of the commodity. The CFTC typically sets less strict limits positions in cash-settled futures markets.

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