Contract Expiration

What Is Contract Expiration?

Futures contracts are agreements to buy or sell an asset at a set price on a specific future date. Unlike stocks or perpetual futures, which you can hold indefinitely, conventional futures contracts have an expiration date. Once that date arrives, the contract is settled and ceases to exist. 

Expiration schedules vary by market, contract and exchange, and are always listed in the contract specifications.

What Happens at Expiration?

A futures contract that reaches expiration is settled in one of two ways.

Cash settlement is the more common outcome for both TradFi and crypto futures. No asset changes hands. Instead, the exchange calculates a final settlement price and credits or debits each trader’s account based on their net position relative to that price.

Physical delivery applies to commodity futures like crude oil or gold, where the seller delivers the actual underlying asset to the buyer. As a result, most retail traders and brokers avoid holding physically settled contracts to expiration, since taking delivery of barrels of oil or ounces of gold is impractical. Brokers will often close positions automatically before the last day to trade to prevent this.

Traders who want to maintain exposure without settling can roll their position: closing the expiring contract and simultaneously opening an equivalent position in a later-dated contract. Rolling carries costs, including spreads and fees on both legs of the trade.