From the August 01, 2012 issue of Futures Magazine • Subscribe!

6 common new trader questions

2. “Why are there expiration dates?/What is rollover?”

Futures are contracts with set time periods. Unlike securities in which you just buy what currently is available, futures allow you to trade products that may not even be grown, yet. As such, each contract has a number of dates associated with it, set by the exchanges. In addition to expiration dates, each contract also has a first position day, last trade day and, if applicable, a delivery day.

In most cases, the contract with the earliest expiration, or the front contract, is the most actively traded. But, that does not mean you can only trade the front contract. If you choose, and if there is available liquidity, you could take a position in a contract months or even years from expiration.

Because a contract has an expiration date, it is important to make sure you exit the position prior to the last trading day, unless you want to take physical delivery. To do that, you must “rollover” your position. This means you have to buy or sell enough contracts in the current month to make your position flat, and then reestablish your position in the next contract month. Some brokers offer special rollover orders what will take care of this for you.

3. “What are the market hours?”

Sanders says he is surprised by this one because all this information is available on the exchanges’ websites and on most brokers’ websites, but says apparently some people would just rather call up and ask someone directly.

Since trading has moved to mostly electronic, many markets are open 24 hours a day, but you still need to understand what you are trading. Beyond know what the actual product is, take time to read the contract specs, including the hours the market is open.

All contract specifications, including market hours, can be found on the products page on each exchange’s website. Most brokers also make this information easy to find on their websites.

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