Futures contracts: expiry and rollover

Most of the world's index trading happens not in the shares themselves but in futures — standardised contracts to buy or sell an index at a set price on a future date. Futures are where many institutions hedge and speculate, and they drive the prices of many index CFDs. Even if you never trade a futures contract directly, understanding how they work explains overnight index moves, rollover dates, and why the price on your platform can differ from the "cash" index.

What you'll learn

• What a futures contract is and how it's standardised
• Contract multipliers, tick sizes, and tick values — with S&P 500 examples
• Margin and daily mark-to-market
• Expiry cycles and contract codes
• How and when traders roll positions

1. What a futures contract is

A futures contract is an agreement to buy or sell an asset at a set price on a set future date, traded on a regulated exchange (for US index futures, principally the CME).

Every contract is standardised: the underlying asset, contract size, minimum price move, and expiry date are fixed by the exchange. That standardisation is what makes futures highly liquid.

Stock index futures are cash-settled — nobody delivers 500 companies' shares. At expiry, the difference is settled in cash. Most traders never hold to expiry anyway; they close or roll positions beforehand.

2. Contract size and tick value

Each index future has a multiplier: the dollar value of one index point.

(Check the exchange's current specifications before trading — they can change.)

Worked example

(Illustrative.) The S&P 500 future is at 5,000.

• Notional value of one ES contract = 5,000 × $50 = $250,000
• One MES contract = 5,000 × $5 = $25,000
• A 20-point move = 20 × $50 = $1,000 per ES, or $100 per MES

That's why Micro contracts matter to smaller accounts: they allow sensible position sizing that full-size contracts can't (see Position sizing 101).

3. Margin and daily settlement

Futures use margin as a performance deposit (see Leverage and margin):

• Initial margin — required to open a position
• Maintenance margin — the minimum that must remain; below it, you get a margin call

Futures are marked to market daily: at each day's settlement, gains are credited and losses debited to your account in cash. A losing position can drain your account day by day even before you close it.

4. Expiry cycle and contract codes

US equity index futures expire quarterly, in March, June, September, and December — generally on the third Friday of the contract month. Each month has a letter code:

A contract is named by product, month code, and year: ESZ6 would be the E-mini S&P 500 December 2026 contract. The nearest expiry is called the front month.

5. Rolling contracts

Because contracts expire, traders who want to keep a position must roll: close the expiring contract and open the next one.

• Trading volume shifts from the front month to the next contract in the days before expiry — typically around a week ahead for equity index futures.
• The two contracts trade at slightly different prices (for reasons covered in the next lesson), so rolling is not "free" — you close at one price and open at another.
• Charting platforms offer continuous contracts that stitch expiries together. Check whether yours is back-adjusted (older prices shifted to remove roll gaps) or not; unadjusted continuous charts can show artificial jumps at each roll.

6. Trading hours

CME equity index futures trade nearly around the clock on weekdays, with a short daily maintenance break. That's why you'll see the S&P 500 future moving overnight in response to Asian or European news — and why "futures are up" is often quoted before the US stock market opens.

Common beginner mistakes

• Sizing by margin instead of by risk.
• Forgetting the daily mark-to-market, and being surprised by cash leaving the account.
• Holding into expiry without planning to roll.
• Misreading roll gaps on unadjusted continuous charts as real price moves.
• Using full-size contracts when Micro contracts fit the account better.

Key terms

Practice

1. Look up the current specifications for ES and MES on the exchange's website: multiplier, tick size, and trading hours.
2. Calculate the notional value of one ES and one MES contract at today's index level.
3. For your account size and 1% risk, calculate how many MES contracts you could trade with a 20-point stop.
4. Find the next quarterly expiry date and mark the roll week in your calendar.

Quick recap

• Futures are standardised, exchange-traded, and (for indices) cash-settled.
• The multiplier sets the money value of each point — Micro contracts are one-tenth of E-minis.
• Margin is a deposit, and positions are marked to market daily.
• Equity index futures expire quarterly (H, M, U, Z); traders roll before expiry.
• Size positions from risk, and watch for roll effects on charts.