Front Month

1. Definition

The Front Month (or Near Month) is the futures contract with the closest expiration date to the current date. * It serves as the primary benchmark for the price of the underlying commodity or asset.

2. Characteristics

1. Highest Liquidity: The vast majority of trading volume and Open Interest is concentrated here. It offers the tightest Bid-Ask spreads.
2. Spot Convergence: As expiration approaches, the price of the front month contract converges with the spot price of the underlying asset.
3. Volatility: It is typically the most volatile contract because it reacts most sensitively to immediate supply and demand news.

3. Transition

When the Front Month contract reaches its expiration (or "First Notice Day"), it expires. Traders must close their positions or "Roll Over" to the next contract (the new Front Month) to avoid physical delivery.