The creation of futures contracts made a huge revolution in the stock market. Initially, the purpose of their creation was to provide a completely new financial relationship between the seller and the buyer.
Thanks to a futures contract, entrepreneurs could agree on future deliveries of products at a pre-fixed price by a certain date.

Such an innovation on the commodity exchange made it possible to make relations between the parties transparent, and the exchange at the same time acted as a guarantor of the execution of the contract.

Naturally, with the passage of time and the active development of the exchange, in parallel with deliverable futures (which are still present on the commodity exchange), so-called settlement futures appeared.

The main purpose of which is speculative trading, as well as hedging risks on the underlying asset. However, the only thing that these two different types of contracts still have in common is the expiration of futures.

Futures expiration is the date on which the contract and the obligations undertaken by the parties are fulfilled.

If we talk about a delivery futures contract on a commodity exchange, it is on this day that the goods are delivered and paid for at a pre-agreed price.

It is worth understanding that the expiration of a settlement future, namely a speculative one, is somewhat different from a commodity one, namely, on a certain day, trading on the asset stops and the asset itself is withdrawn from the market.

That is why, in order to avoid automatic closure of transactions at a price that is unfavorable for the trader, you must clearly know the expiration date of the contract you have chosen.

Determining the expiration time of a futures contract

Expiration of futures contracts, as a rule, occurs four times a year, namely quarterly.

However, it is worth understanding that on different exchanges and depending on the futures itself, expiration may differ slightly.

That is why it is very important to learn how to read this information directly from the name of the futures contract.

As an example, we will look at the September futures contract for Brent oil, which can be traded at InstaForex.

So, when you add this asset, you can see this name #XBZU7. The first three letters #XBZ are responsible for the underlying asset, and in our case, Brent oil, while the remaining two letters indicate the month and year of expiration of the futures.

So, the penultimate letter F indicates the month January, G – February, H – March, J – April, K – May, M – June, N – July, Q – August, U – September, V – October, X – November, Z – December.

Thus, it is worth understanding that to mark the months in the futures contract, the first letters of the names of the months in English were taken. The last digit indicates the year of the contract, namely if 6 is 2016, 7 is 2017 and so on.

More detailed information on the exact expiration date of the futures can be easily found on the official website of the exchange on which you trade futures, or on your broker’s page in the section on contract specifications.

The impact of futures expiration on price movement

The price movement of a futures contract, as a derivative asset, is almost always identical to the movement of the price of the underlying asset, namely a stock, index, or any other security.

It is this feature of futures that traders use to hedge risks that arise during trading with the underlying asset.

However, in the last weeks before expiration, the price movements of the futures and the underlying asset begin to diverge, and the volatility itself slows down very much.

This is due to the fact that as expiration approaches, traders begin to fix their positions at a more favorable price and move on to the next futures for the same asset, but with a different expiration time.

This factor must be taken into account in your trading, since spread and correlation strategies at this moment can produce huge losses.

In conclusion, it is worth noting that any futures trader simply must know the expiration time of the contract, since market activity directly depends on it.

It is also worth understanding that at the time of expiration the transaction will be automatically closed by the broker at the market price, so failure to take this point into account may lead to unexpected losses.

Good day to all!

Today I will try to answer a question that I get asked quite often: “what happens to an open position upon expiration (transition to a new futures contract)”?

So, let's begin.

Expiration of futures contracts

First, I want to point out, do not forget to monitor the life of the futures contract. You can follow it in the “current trading” sign in QUIK (see screenshot below) or on the Moscow Exchange website. Most contracts change every 3 months. But some have a shorter lifespan. For example, Brent oil.

Even if you forgot to close the position before expiration, it’s okay, the broker itself will recalculate the variation margin into profit. For example, if you bought Gazprom at a price of 13,700 and at the time the contract expired, the price on the instrument was 13,850 and your profit was 150 rubles, then it will be automatically credited to your account.

There is still a small point that is worth paying attention to and with which many people get confused. If we look at our table in QUIK, we will see that there are settled futures and deliverable ones. Most instruments are calculated.

In this topic I will not focus on what settlement and delivery futures are; I will talk about this in a separate article. It is believed that for deliverable futures, after expiration, you are credited with the corresponding number of shares in the spot account. But in fact, the situation is similar to the settlement futures contract and you will simply be credited with paper profits to your account. I personally verified this information.

And finally, one small recommendation. Don't forget to change contracts on time, especially if you trade intraday. I do this the day before moving to a new contract. Usually, on the last day, the volatility of the instrument drops very significantly, and if you forget to change the instrument, you will simply pay an extra commission to the broker or find yourself in a slight minus, since the instrument practically does not move. Therefore, update your tools on time. This happened to me when I just started trading on the stock exchange. Sometimes I forgot to change the contract and spent the whole day staring at an almost dead schedule and did not understand what was happening :) In general, be careful. Profits to all. Bye!

Sincerely, Stanislav Stanishevsky.

(from the English expiration - end, completion, expiration) - the process of completing the circulation of derivatives contracts (futures and options) on the exchange. Expiration is actually the date when obligations under futures and options are fulfilled (i.e., the delivery of an asset and/or mutual settlements between the parties to the transaction took place).

Futures contracts traded on the exchange have standardized execution (expiration) dates.

Expiration of RTS index futures

So, for example, it is executed 4 times a year, commodity futures on the CME are executed every month.
Expiration dates are set in the specifications of futures contracts.

At the time of expiration, there is a struggle for their income between sellers and buyers of options. And in this struggle there are many questions:

1) the volume of the derivatives market and its proportionality to the stock market
2) distribution of assets of market participants
3) pressure from market makers

Therefore, market volatility increases during the expiration period, and the final result depends on which group wins.
When expiration reaches its minimum

Many beginners do not understand what futures expiration is, because they think that it is not necessary to know this to trade Forex. Traders on the stock exchange, of course, are faced with a similar phenomenon, so they simply physically cannot ignore it. Below we will tell you what expiration is, how futures contracts affect the quotes of currency pairs familiar to Forex traders, and what practical benefits can be derived from this knowledge.

The material will be useful to all speculators, regardless of whether they trade on the Moscow Exchange, CME or Forex, or maybe on some other exchange platforms, since the mechanism is the same everywhere.

Definition of terminology

The Russian word expiration comes from the English term expiration, which means the end of a certain period/term. When applied to an exchange, this is the end date of trading in a specific futures contract. As you know, futures can be settled or delivered, which means that when they are used there must be some date on which market participants will have to fulfill their obligations under the contract.

Expiration dates are set in advance - when the futures are put into use, so you can find them out by looking at the contract specification.

For the popular RTS instrument, traded on the Moscow Exchange, expiration occurs every quarter, that is, in just a year there are 4 contract changes. For comparison, on the same commodity exchange in Chicago - CME - futures are executed monthly.

Consideration of expiration for some popular assets

Below we will discuss how to look at the specifications of futures contracts on the Moscow Exchange, but for now let’s see what can be found there about RTS regarding expiration:
“The last trading day on which it is still possible to conclude transactions under the contract is the 15th day of the corresponding month, and for situations where the 15th falls on a day off, consider the first working day following the weekend as the date of the last trading day.”

In which months RTS is executed will also be described below, but now you need to pay attention that clause No. 4.7 also states: “To fulfill obligations under the contract, the settlement price must be considered the average RTS value in the period 15-16 hours Moscow time on the last trading day, which is determined by the algorithm of clause No. 3.4 or clause No. 7.2 in the specification by multiplying by one hundred.”

Relationship between expiration of futures contracts and options

Today, options expiration on the Moscow Exchange occurs every month, and it is very important for every trader to know when their expiration date occurs, since quotes at this moment can behave in a very unpredictable way. You should be prepared for the fact that between 15-16 hours Moscow time, a futures contract will be settled, which will finally stop trading after 16:00. In connection with the formation of the settlement price for futures, the cost of options can make rapid somersaults. Here is a clear example of such a situation on the chart.

As one of the traders testified, who did not take into account the expiration factor, at that moment, due to the rapid momentum on PUT options, his loss amounted to 50 thousand USD! The reason is a sharp drop in RTS quotes from 15:00 to 16:00 at the time of contract expiration.

Traders who do not trade on the Moscow Exchange may not be interested in RTS, Si and other futures, but they definitely need to take into account the expiration of the American stock index SP500, as it can affect a number of instruments. You should also definitely keep an eye on futures for popular currencies and Brent oil.

As for CP, you need to know the following about its expiration:

• full closure of the contract occurs once a quarter, namely in March, June, September and December;
• expiration itself occurs on every third Friday of the corresponding month;
• You can work with an expiring contract until 16:30 Moscow time.

How expiration can affect trading

At the moment of expiration, the influence of the so-called doll is most felt on the market, since price movements often make simply amazing somersaults. This is explained by the fact that at this moment the struggle between buyers and sellers is especially fierce.

Particularly critical factors in pricing during this period will be:

• volumes and the relationship between the stock market and the derivatives market;
• mechanism for distributing trading instruments between participants;
• influence of market makers.

As a result of these factors, which intersect and overlap each other, there is a sharp surge in volatility in the market against the backdrop of greatly increased volumes, and the direction of movement will greatly depend on who will be the winner in this decisive battle - sellers or buyers.

What a beginner needs to know about expiration

Now, as promised above, let’s look in more detail at how futures expire on the Moscow Exchange, and first of all, look at the RTS index. His contract changes 4 times a year, that is, quarterly.

Every calendar year begins with the March futures being used in everyday life. It got its name because the contract expires in March. The designation of such an index on the stock exchange and in trading terminals will be RI (RTS ticker) + H (March designation) + 7 (last digit of 2017).

In addition to H, there may be other letters indicating the month. There are 4 of them in total for RTS:

• H - March (RIH7);
• M - June (RIM7);
• U - September (RIU7);
• Z - the last contract will expire in December (RIZ7).

At the same time, several contracts are traded on the market at any given time, since the validity period of any of them is 6 months. For example, the currently active futures RIH7 was available for trading back in mid-September. However, active trading of a contract begins when there are 3 months left before its expiration.

That is, liquidity, spreads and general activity on RIH7 began when the December 2016 contract was closed, its designation is RIZ6. Therefore, from December 15, all speculators, investors and other participants switched to trading RIH7, which will be traded until March 15, 2017.

As mentioned above, the last trading day for the RI contract falls on the 15th of the 4 months above.

Old contracts, as soon as their validity dates expire, that is, after expiration, are no longer supported. The exchange closes them and they are no longer used. The positions of those traders who did not close them themselves are liquidated at the current market price, which is capable of making significant movements during this period against the backdrop of sharply increasing volatility.

In order to obtain detailed information about the Moscow Exchange futures contract, you can go to its official website, where there is a corresponding section describing options and futures. Here you can, for example, select an existing RTS contract to view its detailed description.

The detailed information looks like this:

Here, with regard to expiration, you need to pay attention to the execution section, which states: “Closing transactions with recalculation of the variation margin, determined by multiplying the average RTS cost by 100 in the period 15-16 hours Moscow time. The price of a step is equal to 1/5 of the value of the American dollar in relation to the Russian ruble.”

Thus, if the futures were not closed by the trader before its expiration, then there is nothing very scary about it. It’s just that on the last trading day between 15-16 hours Moscow time, the transaction will be liquidated by the exchange automatically at the average RTS price. Conversion into banknotes will be done by multiplying the price by 100 to remove the numbers after the decimal point. Well, the price step is calculated based on the dollar exchange rate that will be established by 16:30 on the same trading day.

But still, it will be safer not to delay the matter until the last minute, but to switch to a new contract in advance. It is best to do this on the day the old contract expires, when the necessary liquidity appears in the new one, as can be seen on the chart - gaps disappear, and price movement begins to develop smoothly.

Many novice traders who are just learning stock trading, often using Quick for this, think that the transition is something complicated. In fact, switching to a new contract when the old one expires is not at all difficult. Below is how exactly this can be done.

How to change an expired contract in Kwik

Let's describe a simple algorithm for how you can quickly change one expired futures to a newer one in QUIK. To do this, right-click on the chart and select “Edit” in the context menu that opens.

In the window that appears, you need to go to the “Diagram” section, click on “Change”, and then specify the name of the new futures. For example, to switch to the March RTS, click RIH7.

By performing this simple operation, the main chart of the asset, as well as everything associated with it, will change, and indicators and other tools will recalculate their values ​​automatically.

However, the order book will remain untouched and must be changed manually. To do this, go to “Create Window”. Here you need to find the item “Current trading” and click on it. Then, in the new FORTS Futures window, enter the ticker of the new futures into the search, for example, RIH7.

Then you can close the old glass, replacing it with an updated one, and start trading.

What is the largest stock exchange in the world? Where exactly are the “owners” of markets most active? These questions are asked sooner or later by any trader who wants to analyze the actions of the largest players in selected trading assets. Currently, the so-called Chicago Mercantile Exchange Group is the most capitalized exchange in the world. On this exchange, futures trading is carried out even on the first cryptocurrency in the world - Bitcoin, not to mention other classic groups of derivatives on energy resources, world stock indices, currencies, metals and even weather.
By the concept of derivatives that are traded on the CME Group exchange, we mean futures and options contracts.

Concepts of options and futures

A future or "futures contract" is a financial instrument traded against a specific underlying asset. It has established exchange standards (quantity of goods, their quality indicators, a clearly defined delivery date, etc.), and is a bilateral agreement. In this case, the parties to the purchase and sale agreement for the selected product stipulate only the cost of the product at the time of delivery, as well as the very date of delivery of the product. Additional necessary parameters of the purchase and sale object (number of units of goods, payment method) have already been included in the unchangeable (template) specification conditions. Anyone can find out about them, since the document is freely available on the official website of the exchange. In this case, the parties who have assumed obligations under this agreement are obliged to fulfill them until the termination of the contract, which is otherwise called the “expiration” of the contract. If we come to the concept of an “option contract”, then for ease of understanding we should immediately note that an option is essentially a bet on a change in the price of a futures contract in the future. Involuntarily, the thought creeps into your head that making transactions in the options market is reminiscent of playing in a casino or betting. However, it’s worth noting right away that this is a misconception, because this financial instrument is a full-fledged legal object of exchange investments and speculation in financial markets of the past 20th and now 21st centuries. At the same time, in accordance with the option purchase and sale agreement, the option seller has an obligation if the condition specified in the contract is achieved, namely, closing the option contracts “in the money” (the location of the futures price at the time of option expiration in the profit zone of the option holder can be in two options : above the strike price of a call option and below the strike of a put option) pay the option holder any profit in the calculation: point value * number of profit points * number of option contracts. The buyer of the option no longer has the obligation, but the right to receive this profit if the contractual condition for closing the option “in the money” at the time of expiration occurs. Therefore, the option holder in this case receives a privileged position relative to the other party to the contract - the seller of the option. For this, the option holder pays the option buyer a commission for purchasing the option contract, which is always debited from his trading account immediately at the time of purchasing the option in favor of the seller (market maker) of the options. To summarize the above, it is worth noting that the seller of options always makes money when the options are sold, and the buyer of the option always pays the commission for the option immediately after purchasing it. The possibility of the buyer of options making money and, accordingly, the seller losing money is nothing more than a probability. It can be realized only after determining the final futures price at the time of expiration of the option, in relation to which all relevant mutual settlements will be made for the payment of profit to holders of “In the Money” options.

Futures contract expiration

If we consider the concept of “futures expiration”, then we can safely say that this is the moment of expiration of the contract itself, which is prescribed in advance and is a known date for the parties to the futures purchase and sale agreement concluded through the CME Group exchange. In this case, after the expiration of the futures contract, the parties to the contract fulfill their previously assumed obligations. According to the form of fulfillment of obligations, futures contracts are divided into two types: settlement (mutual settlements are carried out between the parties to the contract); delivery (physical delivery of the goods is carried out, which forms the basis of the contract). If we literally consider the direct delivery of goods, then it is worth noting that the party to the contract, who calls himself the “futures seller,” has the obligation to carry out direct delivery of the goods, and the “futures buyer” has the obligation to transfer to the other party the price for the goods previously agreed upon at the time of the transaction. It is worth noting once again that on the largest exchange in the world, which, with the development of electronic technologies of the 21st century, already has its own electronic platform CME GLOBEX, transactions take place for the purchase and sale of futures with the direct delivery of goods after its expiration for different classes of goods: metal, currency or energy carrier. In the case of purchasing a futures contract for stock indices (for example, S&P500), during the expiration of the S&P500 Futures futures contract, mutual settlements are carried out between the buyer and seller of the futures regarding the difference in stock index prices at the time of concluding the contract and its expiration. Mutual settlement at expiration occurs due to the fact that a stock index is, in fact, the weighted average cost of shares of companies included in the index. In view of this, it is advisable, when making settlements after the expiration of the contract, not to carry out physical delivery of the weighted average cost of shares of the list of companies, but to carry out financial settlements between the buyer and seller of the futures contract. Financial settlement is essentially the closing of a transaction on an instrument at the asset price at expiration. The opening price of a transaction is the futures price at the time the futures contract is concluded. To trade on financial markets, you should not pay such deep attention to the mechanisms of mutual settlements during the expiration of futures.

For investor and speculative purposes, it is enough to know: On the day of expiration of futures contracts, mutual settlements are carried out between buyers and sellers of contracts.

Due to the large capitalization of futures markets, the expiration of contracts is an important financial time period, mutual settlements on the day of which can significantly change the direction of the medium-term price movement of the underlying asset on a daily, weekly and even monthly time interval.

The redistribution of capital among large market participants in the form of physical transfer of goods (in the delivery type of futures) or transfer of money (in the settlement type of futures) is a cyclical process, predetermined in time.

In view of this, if you have the necessary knowledge in determining the expiration of contracts, you can draw up a so-called calendar of financial valid time periods, the occurrence of which will most likely be determined by a rollback, correction or change in the trend of the underlying asset chart on long-term time intervals (day, week, month). So, in order to find the expiration calendar of futures contracts on the CME Group European Exchange, just go to the “Calendar” tab of the contract specification:

For more sophisticated traders who want to know not only the day, but also the exact time of expiration, you need to go to the “Contract Spec” tab of the futures contract specification. The line “Termination Of Trading” will indicate the exact time (moment of expiration) of termination of trading in the futures contract.

For example, a Euro currency futures contract expires at 09:16 AM Central Time (6:00 GMT) on the second business day of the CME Group exchange immediately preceding the third Wednesday of the contract month (usually Monday). At the same time, there is no need to worry about independently calculating the expiration date. It will be easier to go to the previously mentioned “Calendar” tab of the contract specification on the exchange website, which already indicates the expiration dates of currently valid futures contracts. In order to determine the exact expiration time of a futures contract for displaying the asset on the chart in the MetaTrader4 trading platform of the brokerage company Gerchik & Co, it is enough to add 8 hours (17:16) before the time indicated on the exchange website (09:16 to noon). You will receive the exact expiration time of the futures contract, which you can display as a vertical line on the asset chart in MT4. In this case, it is necessary to add exactly 8 hours before the time indicated on the exchange website, because the trading servers of the brokerage company Gerchik & Co operate in the Eastern European time zone (GMT+2). Thus, the difference between the time zones Central Time (GMT-6) and Eastern European Time (GMT+2) is exactly 8 hours. It is also worth drawing readers’ attention to the fact that the Chicago Mercantile Exchange sells monthly as well as weekly futures contracts. The difference between these types of futures is that each March, July, September, December monthly futures contract is quarterly. The remaining 8 monthly contracts: JAN, FEB, APR, MAY, JUL, AUG, OCT, NOV are simply monthly contracts. A striking difference between simple monthly and quarterly futures is the period of opportunity to make transactions on contracts. Thus, for CME Group futures for major currencies, the opportunity to make transactions on simple monthly futures is provided 4-5 months before the expiration date, and on quarterly ones - 5 years (60 months) before the expiration date of the currency futures. Thus, the largest market participants buy quarterly futures, the delivery date of which may occur in several years. Accordingly, trading volumes and open interest for quarterly futures contracts are an order of magnitude higher than simple monthly futures, due to their purchase by institutional investors. From all this it follows that the redistribution of funds between major players during the expiration of quarterly futures have a greater impact on changes in the long-term dynamics of the asset price compared to the expiration of a simple monthly futures.

Options expiration

The option itself, in essence, is “financial insurance” against an unexpected change in the futures price above its average volatility for a certain period. Thus, a member of the CME Group exchange who wishes now or in the future to make a transaction on the futures market, and ultimately accumulate a total position of several hundred or thousand futures contracts, must somehow insure the risk of open positions before the final closure of the position. He can do this in two ways: either use his huge deposit to “sit out” open unprofitable positions, or open a deal on the options market in the opposite direction from the deal originally opened on the futures market. Thus, the paper loss on the futures position will be offset by the profit from the option “hedging” position. If the price moves in the direction of profit on the futures, the “insurance fee” will be the initially paid commission for the purchase of option insurance.

Like futures, there are two types of options: delivery option; settlement option.

For example, at the time of expiration of option contracts, the final price for the futures contract closest to expiration is fixed, in relation to which mutual settlements are made between buyers and sellers of options. In the event of closing of deliverable options “In the Money”, the buyer of the options is given the right to dispose of the futures position with the opening price - the option strike (call options - a position to buy a futures, put options - a position to sell a futures), and the corresponding paper profit from the transaction opening price to the last current futures price. Thus, at the time of option expiration, the process of transferring the right to dispose of futures contracts from the options market maker to option buyers (hedgers) occurs. The hedger, having received the right to own a profitable futures position after the option expires, has the opportunity to close it. When closing a futures position, he makes a transaction opposite to the previously opened one (the purchase of a futures contract is closed by the sale of a futures contract and vice versa). Thus, it affects the futures price itself, causing a rollback, correction or trend change on the daily as well as weekly time frames of the asset chart. It is worth noting that there are two types of options - weekly and monthly. Monthly options, similar to futures, are also divided into simple monthly (JAN, FEB, APR, MAY, JUL, AUG, OCT, NOV) and quarterly options (MAR, JUL, SEP, DEC). Each of the three options (Week, Month, Quarter) has a different trading period.

Thus, transactions on CME Group options on futures of major currencies can be carried out: weekly options - 30-40 calendar days before the expiration date; monthly options - 180 calendar days before the expiration date; weekly options - 365 calendar days before the expiration date.

Thus, the largest institutional investors who want to “hedge” the risks of open positions in currency futures buy quarterly options, which make it possible to insure the risk for up to 1 year. Smaller investors who hold open positions in currency futures for no more than six months buy monthly options. Well, the most “short-term” investors who hold open positions in currency futures for up to 30-40 days buy weekly options. Based on this logic, on the expiration day of each of the actually three existing types of options, in-the-money option holders become owners of profitable open futures positions in the calculation of “1 option = 1 futures.” By closing profitable futures positions immediately after options expiration, option buyers, or “hedgers” as we call them, actually cause price pullbacks, corrections, or reversals that often occur after option contract expiration dates. You can get acquainted with the expiration date of option contracts on euro futures, for example, by analogy with euro futures, by going to the “Calendar” tab of the contract specification on the CME Group exchange website.

From the “Type” drop-down list, you can select the type of contract you are interested in (monthly, weekly, weekly with expiration on Wednesdays, and others).

If you want to find out more precisely the expiration time of option contracts in accordance with the time zones of the trading servers of the brokerage company Gerchik & Co, go to the “Contract Spec” tab. Next, in the “Termination of Trading” line, find the option expiration time in the Central Time (GMT-6) time zone.