Expiration: what happens on the contract's last day
· beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
Every derivatives contract has an end date, and the method of performance is set in advance.
The cash-settled contract
Performed in money: the difference between the contract price and the final settlement price is credited or debited. No asset is delivered.
The physically settled contract
Performed by actual delivery of the underlying. The holder of a long position must pay the full value and take the asset.
The settlement price
Determined by exchange rules, usually as an average over some interval of the final day rather than as the last trade. That is protection against price manipulation in the closing seconds.
Behaviour before expiration
Liquidity falls in the expiring contract and rises in the next one. Spreads widen and moves get sharper.
A position holder has to either close it or roll into the next contract — and the roll has a price: Contango and backwardation: why a long futures position melts.
What to check
The contract type, the expiration date and the method for setting the settlement price. All three are stated in the contract specification on the exchange's site and are never "by default".
Related: Futures: an obligation, not an option and Initial margin: why a position can be closed without you.
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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