Front Month Contract

A front month contract is the futures or options contract with the nearest expiration date still actively trading. If it's June and contracts exist for June, July, August, and September, the June contract is the front month.

Futures and many options contracts don't just exist as one perpetual instrument — they're issued in a series of monthly (or sometimes quarterly) contracts, each expiring on a set date. As one contract nears its expiration, it's called the front month or "spot month." The next one out is usually called the back month or second month, and so on down the chain.

The front month is where the action usually is: it typically has the tightest bid-ask spreads, the highest trading volume, and the most open interest (the number of contracts still outstanding), because most short-term traders and speculators cluster there rather than in further-dated contracts. Prices in the front month also tend to track the underlying asset's current spot price most closely, since there's less time for expectations about the future to diverge.

The nuance that trips people up: front month contracts eventually expire, and as expiration approaches, liquidity can dry up fast and price behavior can get erratic — a phenomenon sometimes called "expiration risk." Traders who hold a front month position without rolling it forward (closing it and opening an equivalent position in the next month out) can get caught holding a contract nobody wants to trade, or in the case of physically-settled futures, an obligation to make or take delivery of the underlying commodity or asset.