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Commodity Futures Trading Cycle
Let’s learn more about Commodity Futures Trading Cycle. Usually, Indian commodity exchanges trade commodities futures having a contract term of one-month, two-month, three-month, and more expiry cycles. A contract cannot be more than 12 months. Most of the futures contracts expire on the 20th of the expiry month while others can be on other dates. Some contracts traded on the exchange now expire on the 10th of every month.
Futures contracts enable investors to use various tactics that can prove profitable while trading. One can resort to arbitrage, hedging, and speculation depending on one’s objectives.
While hedging safeguards against risks due to price variation, arbitrage results in risk-less profit, and speculation aim at generating very large profits. However, a futures contract is an obligation and, consequently, the investor must fulfill it even if the asset price on the settlement date is not favorable for him.
So, one needs to understand the mechanism and risks involved before entering the futures market. Here are some terms that can help you.
A contract cycle is a period for which the futures contract trades on an exchange. Stock and index futures have one-month (near month), two-month (next month), and three-month (far month) contract cycles. A new contract, which is for three months, is introduced after the expiry of the near month contract. Therefore, at any point, there are three contracts available for trading in the futures market.
