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Futures Expirations and Active Trades

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As discussed in my article about futures contract expiration dates, futures contracts expire at regular intervals (e.g. monthly, every three months, etc.), and once a futures contract has expired, it can not be traded any more. So, what do you do if you have an active trade using a futures contract that is about to expire, and you want to keep the trade active past the futures contract expiration date?

Exiting and Entering

Keeping a trade active through a futures contract expiration is very simple, and only requires simultaneously exiting the trade using the expiring futures contract, and entering the trade using the about to be current futures contract. For example, a trade on the Euro to US Dollar futures market that was active on the third Friday of September, could be kept active by exiting the trade using the September contract, and entering the trade using the December contract.

Ideally, the orders to exit the trade using the expiring futures contract, and enter the trade using the about to be current futures contract, should be processed at the same time, in order to keep the trade at the same profit or loss. If for some reason it is not possible to process the orders at the same time, then a few seconds delay should not cause any problems (unless the exiting and entering happens to be performed at a highly volatile moment).

Updating the Targets and Stop Loss

In addition to exiting the trade using the expiring futures contract, and entering the trade using the about to be current futures contract, the trade's targets and stop loss prices will probably need to be updated (because different futures contracts are not usually at the same price at the same time). For example, a trade on the Euro to US Dollar futures market that has an exit price of 1.2550 using the expiring futures contract, and an entry price of 1.2556 using the about to be current futures contract, would need to have its targets and stop loss prices updated by adding six points (1.2556 - 1.2550 = 6). Ideally, the update of the trade's targets and stop loss prices should be performed immediately after the trade has been entered using the about to be current futures contract, but a few seconds delay should not cause any problems, unless the trade happens to be near one of its targets or its stop loss when the trade is exited and entered.

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