Time and Location Information in Commodity Futures Contracts - dummies

Time and Location Information in Commodity Futures Contracts

By Amine Bouchentouf

There are many moving pieces involved in trading commodity futures contracts. The regulatory bodies that are responsible for overseeing and monitoring trading activities on commodity futures exchanges are the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).

Trading months

Although you can trade futures contracts practically around the clock, certain commodities are available for delivery only during certain months.

For instance, frozen pork bellies on the CME are listed for the months of February, March, May, July, and August. This means that you can trade a July contract at any given point, but you cannot trade a June contract — a contract that’s deliverable in June — because that contract doesn’t exist. On the other hand, crude oil on the CME is available all 12 months of the year.

Check the contract listing before you trade so you know for which delivery months you can trade the contracts.

The front month is simply the upcoming delivery month. For example, June is the front month during the May trading session.

In the world of futures, trading and delivery months have specific abbreviations attributed to each month.

Month Code Month Code
January F July N
February G August Q
March H September U
April J October V
May K November X
June M December Z

Traders use these abbreviations to quickly identify the months they’re interested in trading. If you’re placing an order with a futures broker, knowing these abbreviations is helpful.

Delivery location

In case of actual delivery, exchanges designate areas where the physical exchange of commodities actually takes place. For instance, delivery of the CME’s WTI crude oil contract takes place in Cushing, Oklahoma, which is a major transportation hub for crude oil in the United States.

Last trading day

All futures contracts must expire at some point. The last trading day is the absolute latest time you have to trade that particular contract. Trading days change from exchange to exchange and from contract to contract. Be sure to check out the contract specifications at the different exchanges for information on the last trading day.

Trading hours

Before the days of electronic trading, contracts were traded through the open outcry system during specific time periods. Now, with the advent of electronic trading, you have more time to trade the contracts. Check the exchange websites for information on trading hours.

Knowing at what times to place your trades has a direct impact on your bottom line because the number of market participants varies throughout the day. Ideally, you’d like to execute your orders when there are the most buyers and sellers because this increases your chances of getting the best price for your contracts.