Front Month (Near Month)

Definition

The term front month refers to the expiration month of an active futures contract with the shortest time to maturity. The front month of a futures contract will vary with the contract's underlying asset.

Explanation

Also referred to as the near month and spot month, the front month of a futures contract refers to the contract with an expiration date that is nearest the current date. Oftentimes, the front month is the same as the current calendar month. The front month is the converse of the back months, which are any months a futures contract expires other than the front month.

Since the front month will have the shortest time to expiration, it will also be the most liquid futures contract for the underlying commodity. The contract will also reflect the fact that since the time to expiration is short, the futures price will begin to converge quickly to the spot price. Generally, when publications quote a commodity futures price, they are referring to the commodity's front month contract.

When trading in a front month contract, the investor must be keenly aware of the contract's expiration date. If the trader's broker does not automatically sell the contract prior to expiration, the investor may be forced to deliver or receive the underlying commodity.

Related Terms

breakaway gapblow off topblow off bottomback months