What Happens On Futures Expiration Day

On futures expiration day, you need to make a decision: whether to roll over the expiring front-month contract or settle it. Rolling over means switching to another contract in a further-out month, while settling refers to either physical delivery of the underlying asset or cash settlement.

Futures Contract Expiration Day (approximate)
E-mini S&P 500 Quarterly on the third Friday of March, June, September, and December
Crude Oil Monthly on the third Wednesday of the month
Gold Monthly on the third Friday of the month
Natural Gas Monthly on the third Wednesday of the month
Euro FX Quarterly on the third Friday of March, June, September, and December
10-Year Treasury Note Quarterly on the second Friday of March, June, September, and December
Wheat Quarterly on the second Friday of March, June, September, and December
Corn Quarterly on the second Friday of March, June, September, and December

The process of rolling over contracts can be complicated and requires careful planning to avoid associated costs and obligations. Also, different types of futures contracts have different specifications regarding their lifespan, marking-to-market, offset positions, and methods for closing out.

Understanding What Happens on Expiration Day

You can either offset your position before the expiration term or hold until expiration day, let it expire and take delivery of the underlying asset (if it’s a physically settled contract).

If you choose to offset your position, you’ll need to close out your current contract by selling or buying an equal amount of contracts with the same maturity date but opposite direction. This process is known as rolling over your futures position.

It allows traders to maintain their exposure without having to take physical delivery of the underlying asset or pay for storage costs associated with physical settlement. Additionally, rolling over allows you to avoid any costs and obligations associated with settlement of the contracts.

On contract expiration day, if you decide not to roll over your position and instead let it expire, then depending on whether it’s cash- or physically-settled contract there may be different rules for handling expired positions.

Upon expiration any profits/losses will be settled in cash automatically by exchange clearing houses without requiring physical delivery of underlying assets.

Physically Delivered 
Traders have until First Notice Day or Last Trading Day (depending on the specific commodity) following the expiry date during which they must deliver/receive actual goods before they can settle final payment from exchange clearing house.

Most traders settled their futures contracts in cash on or before they expire.


What is a Futures Contract?

A futures contract is an agreement between two parties to buy or sell an asset at an agreed-upon price and date, with delivery and payment occurring at a later time.

These contracts are traded on exchanges and have standardized terms, such as the underlying asset, quantity, expiration month, and settlement method.

crude oilThe expiration month is when the futures contract comes due and must be either settled by physical delivery of the underlying asset or cash settlement. Futures contracts have a limited lifespan that varies depending on the type of asset being traded.

For example, crude oil futures typically expire every month while stock index futures expire quarterly. It’s important for traders to keep track of these expiration dates as they approach so they can decide whether to roll over their positions or close them out before expiry.


Types of Futures Contracts

Futures contracts come in different types, and it’s important to understand them if you want to trade in this market. Agricultural products like corn, soybeans, wheat, cotton, coffee, cocoa, and livestock are some of the most common types of commodity futures contracts.

Energy products such as crude oil, natural gas, heating oil, and gasoline are also popular among traders.

Financial futures contracts allow traders to speculate on the value of financial instruments such as stocks, bonds, or interest rates. These contracts offer exposure to underlying assets without having to own them outright, which can be expensive due to high capital requirements.

Currencies are another category of futures trading that enable traders to hedge against fluctuations in exchange rates between different countries’ currencies. Finally, delivery can either be physical where buyers receive the actual underlying asset or cash settlement where buyers receive an equivalent cash amount based on the value of the underlying asset at expiration day.


What Are Perpetual Futures Contracts?

Perpetual futures contracts, also known as perpetual swaps, are financial agreements to buy or sell an asset at an unspecified time in the future. These contracts are cash-settled and do not have a specific delivery date, meaning they can be held indefinitely without needing to roll over contracts as they approach expiration. Periodic payments are exchanged between the long and short sides of the contracts, based on the difference between the contract price and the price of the underlying asset, as well as any differences in leverage between the two sides.


Contract Specifications

The contract specifications include various elements such as the underlying asset, size, delivery months, tick size, and daily price limits. Also be aware of the settlement method used in each futures contract as it affects how traders close out their positions.


Expiration Date and Time Limits for Each Contract

Here are 5 key points to remember about expiration dates:

  1. The expiration term refers to the period of time during which the contract can be traded
  2. Each futures contract has a set contract month, which determines when it expires
  3. Positions at expiration refer to the final position that a trader holds on the last day of trading for a particular futures contract
  4. Futures positions must be closed out before the First Notice Day or Last Trading Day, depending on whether physical or cash settlement is used
  5. Traders who hold positions beyond these deadlines risk being forced into settlement and potentially incurring large costs

To avoid these costs and obligations associated with settlement, traders typically roll over their positions by switching to another contract in a further-out month before the current one expires.


Marking to Market

When you trade futures, you’ll need to mark your positions to market regularly to ensure that you have enough margin in your account and are aware of any potential losses or gains.

On the day of expiration, all open futures contracts must be marked to market. This means that the price of each contract is compared to the current market price and any resulting gain or loss is credited or debited from your account.

If you hold a position past expiration day, it will be automatically closed out by your broker. If the futures contract settles via cash settlement, then any profits or losses will be settled in cash on the business day following expiration day.

However, if it settles via physical delivery, then traders must deliver or receive the underlying asset as specified in the contract month. It’s important to manage your positions and ensure that they are properly marked to market before expiration day arrives.


Cash Settlement vs. Physical Delivery

When trading futures contracts, it’s crucial to understand the difference between cash settlement and physical delivery. Physical delivery means receiving the actual goods, which is used for non-financial commodities like grains, livestock, and precious metals. However, this process involves transportation and storage fees, which can be costly.

Cash settlement, on the other hand, is used for financial futures contracts like E-mini contracts. With cash settlement, no physical exchange occurs, and payment is made based on the difference between the contract price at expiration and the market price at that time. This method allows for a more straightforward transfer of funds without the hassle of dealing with actual goods.

It’s important to keep in mind that not all futures contracts are settled through cash settlement or physical delivery. Some may be settled through other means such as exchange-traded spreads or options strategies, depending on their expiration term.

The most popular method is cash settlement and the usual route taken by traders.


Offset Positions and Common Methods for Closing Out

One common method for closing out futures contracts is by offsetting positions. This involves taking an opposite position in the same futures contract with the same expiration date. Offsetting can be done either through buying or selling a contract of the same type and quantity as the original position.

For example, if you hold a long position in one crude oil futures contract, you can offset this by selling one crude oil futures contract of the same expiration date.

Other common methods for closing out futures contracts include physical delivery, cash settlement, and rolling over contracts to longer-dated ones.


Basics of Futures Trading

If you’re looking to get started with trading the futures market, it’s essential to understand the basics.

Here are four key things you need to know:

  1. Futures contracts are agreements between two parties to buy or sell a particular asset at a specific price and date. The underlying assets can be commodities like gold or oil, financial instruments like stocks or bonds, or even currencies.
  2. Unlike stocks, futures contracts have expiration dates, which means they only remain valid for a certain period of time before they expire.
  3. On expiration day, traders must either close out their position by settling or roll over their position to a later expiration date.
  4. When trading futures, it’s important to have an understanding of the market and the factors that influence prices so that you can make informed decisions about when to enter and exit positions.

By grasping these basic concepts of futures trading you’ll be better equipped to navigate expiration day and maximize your potential profits while minimizing risk.


Pros and Cons Of Trading Futures

Pros of Trading Futures Cons of Trading Futures
Leverage: Allows traders to control larger positions with less capital. Leverage Risk: Magnifies potential losses if the market moves against the position.
Liquidity: Futures markets are highly liquid, facilitating quick entry and exit of positions. Volatility: Futures markets can be subject to significant price swings and increased risk.
Diversification: Offers a range of asset classes, allowing for portfolio diversification. Margin Calls: May require additional funds if the account balance falls below the required margin.
Hedging: Futures contracts provide a tool for managing price risk and protecting against losses. Complexity: Requires understanding complex financial instruments and market dynamics.
Lower Costs: Transaction costs are often lower compared to other financial instruments. Time Commitment: Active trading requires continuous monitoring and analysis.


Equity Index Futures vs Commodity Futures

One important distinction to make when trading futures is between equity index futures and commodity futures. Equity index futures allow traders to speculate on the future value of an underlying equity index, such as the S&P 500 or NASDAQ-100. These contracts are cash settled upon expiration, meaning that no physical delivery of goods takes place. Instead, profits or losses are paid out in cash based on the difference between the contract’s price at entry and exit.

Commodity futures, however, may involve physical delivery of goods upon expiration. For instance, if you hold a crude oil contract until expiration day and do not roll it over to a new contract or settle, you may be obligated to take physical delivery of barrels of crude oil.

Due to this physical delivery obligation, many traders prefer to roll over their commodity futures positions before expiration day to avoid costly settlement obligations.

Understanding the differences between these two types of futures can help you make more informed trading decisions when dealing with futures expiration day.


Opening Position vs. Current Position

When traders open a futures position, they’re essentially betting on the future price of an underlying asset. As time passes and the expiration date approaches, traders may need to roll over their current position to avoid settlement costs.  This means closing out the existing and opening a new one with a later expiration date at the current market price. Rolling over a futures position allows traders to maintain their exposure to the underlying asset beyond the original contract’s expiration date.

It’s important to note that when rolling over, any gain or loss on the original contract must be settled before taking on a new position. Traders will typically roll over their futures contracts as necessary until they decide to close out their positions entirely or until the final expiration date.


Frequently Asked Questions

What happens if we don’t close futures contracts when they expire?

If you don’t close futures contracts when they expire, they will be settled according to the terms of the contract. This usually involves physical delivery or cash settlement, depending on the specific futures contract.

How long can you keep a futures position open?

The duration for keeping a futures position open varies depending on the specific futures contract. Some futures have monthly expirations, while others may expire quarterly or on specific dates. It’s important to check the contract specifications for the particular futures market you’re trading to determine the maximum holding period.

Is it a good idea to trade on the day a futures contract expires?

Trading on the day a futures contract expires can be risky due to increased volatility and potential liquidity issues. It’s crucial to consider market conditions, one’s risk tolerance, and the specific contract’s characteristics before making a decision.

Can you lose more money than you invest in futures?

Yes, it is possible to lose more money than you invest in futures. Due to leverage, a small adverse price movement can result in substantial losses, exceeding the initial investment or margin requirement. Risk management is crucial when trading futures.

What occurs when an oil futures contract comes to an end?

When an oil futures contract expires, traders have three options: roll over the contract to a later expiration, settle it in cash, or physically deliver the oil. Most traders choose to close out their positions before expiration by offsetting them with opposite trades.



Futures contract expiration day can seem intimidating, but it doesn’t have to be. By understanding the basics of how futures contracts work and knowing what to expect on expiration day, futures traders can make better decisions that benefit your trading strategy.  Remember to have your exit plan in place for every futures contract you trade.

Author: CoachShane
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.