In futures trading, the term far month denotes the latest month in which a futures contract can expire. A futures contract is a promise by a seller to a buyer to deliver the goods comprising the underlying assets of the contract when the contract expires.
Depending on the nature of the asset which underlies the futures contract, the contract may be offered in several versions, each with a different futures contract month. The futures contract month is the month on which a futures contract expires. The futures contract month closest to the date on which the contract is created is known as the spot month, near month, front month or nearby month. The futures contract month which is furthest from the date on which the contract is created is the far month.
Example: The futures contract months for soybeans futures traded on Chicago Mercantile Exchange (CME) commodities exchanges are January, March, May, July, August, September and November. The spot month for soybean futures in a given calendar year is January, and the far month is November.
Many futures contracts contain clauses which allow them to be rolled over to the next futures contract month rather than exercised, up to the far month at the latest.
Typically, most selling of futures contract on the secondary market occurs in the near month, with trade declining month on month until the far month. The reason for this is that most investors do not want to hold futures contracts when they expire because they do not want to actually buy the underlying assets. They simply want to hold futures until they can sell them at a profit – either to another trader or to an actual manufacturer or retailer which wants to obtain the assets. By the far month, trading is typically limited to purchases by manufacturers or retailers who actually want the physical assets.
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