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What price do the futures contracts expire at?


Spook1304

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Hi,

I'm currently tracking cash/futures prices on some commodities (Crude Oil, Heating Oil, and London Gas) and would like to know how the futures contracts expire.

The expectation is that the futures contract will be the same as the cash price on expiration as per this IG article:
https://www.ig.com/ae/trading-strategies/what-is-a-futures-contract--201202

Quote

When a futures contract expires, it will be equal to the spot price.

I'm looking for someone to confirm if this is the case and its not "equal to the spot price" via some arbitrary credit/debit function that happens overnight.

EG, 
Natural Gas currently has a cash price of 3613 and a DEC23 Futures price of 3557 - a 56 point gap. The futures contract will expire on the 17th Nov - 14 days from now.

If the Natural Gas cash price were to remain completely stationary at 3613 until the 17th Nov, what would the DEC23 futures price do as time passes?
Would this slowly start to close the gap as the expiry nears and expire at ~3613 or would some debit/credit thing happen overnight to artificially close the gap and the DEC23 future would maintain the 56 point gap?

The article quoted above suggests that once the expiry date hits, both DEC23 Future and Cash price should be 3613 and if their prices were plotted on a graph, it should show them converging like the attached image.

Any input would be much appreciated.

Thanks.

image.png

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@Caseynotes Would love your expert input here :)
On my demo account, I have 2x positions open for Natural Gas,

  • BUY Future (DEC23) - 3604
  • SELL Cash - 3634
  • 30pt difference

According to what I've read, the gap should close come expiry date as depicted in my post above. 
I'm currently receiving an interest payment for the cash position overnight (and paying a small IG fee).
I'm looking for clarification on what the future price will do come expiry time.

I'm assuming its one of the 3 outcomes below but not sure which and cant find much info on it.
If the cash price remains the same until expiry:

  1. The future will climb gradually as the expiry approaches. Once the expiration date/time is hit, both CASH and DEC23 Future will be the same price - 3634 in this example. The 30pt gap will be closed.
  2. The future will expire at its current price 3604. The 30pt gap will remain. An overnight "adjustment" will be made to "artificially" close the gap.
  3. The future will expire at its current price 3604. the 30pt gap will remain. No adjustments will be made.
  4. The future will expire at its current price 3604. the 30pt gap will remain. The interest payments that were paid each night were daily "adjustments" to artificially close the gap.
  5. All of the above are wrong :S

I have trades open on demo to test the outcome but would prefer not to have to wait until the 17th Nov to find out. Any help is greatly appreciated.

 

Thanks.

 

 

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3 hours ago, Spook1304 said:

Hi,

I'm currently tracking cash/futures prices on some commodities (Crude Oil, Heating Oil, and London Gas) and would like to know how the futures contracts expire.

The expectation is that the futures contract will be the same as the cash price on expiration as per this IG article:
https://www.ig.com/ae/trading-strategies/what-is-a-futures-contract--201202

I'm looking for someone to confirm if this is the case and its not "equal to the spot price" via some arbitrary credit/debit function that happens overnight.

EG, 
Natural Gas currently has a cash price of 3613 and a DEC23 Futures price of 3557 - a 56 point gap. The futures contract will expire on the 17th Nov - 14 days from now.

If the Natural Gas cash price were to remain completely stationary at 3613 until the 17th Nov, what would the DEC23 futures price do as time passes?
Would this slowly start to close the gap as the expiry nears and expire at ~3613 or would some debit/credit thing happen overnight to artificially close the gap and the DEC23 future would maintain the 56 point gap?

The article quoted above suggests that once the expiry date hits, both DEC23 Future and Cash price should be 3613 and if their prices were plotted on a graph, it should show them converging like the attached image.

Any input would be much appreciated.

Thanks.

image.png

Hi @Spook1304,

Thank you for your post.

Please note that the expectation that a cash contract is the same as futures, the cash is the one that diverts towards the future not vice versa. These contracts expire a month before due to liquidity. 

The convection for commodity futures is that they settle in the month previous to the named month (so Feb settles in Jan, Mar settles in Feb).

Please note we are only reflecting the terms of the real market.

All the best,

KoketsoIG

Please rate us on Trustpilot: IG Trustpilot 

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Thanks for the reply @KoketsoIG.
I'm colleting overnight interest on my cash position and want to ensure that the future and cash values will indeed converge with each other on 17th Nov so the price for both should be the same. This means i should keep the interest payments I've been getting daily and also profit from the gap between the CASH and Future contracts as everything I've read says that on expiry, the cash and futures contracts should be the same price.

So for my example:

  • SELL Cash - 3634
  • BUY Future (DEC23 - Expires 17th Nov) - 3604

If the price of Natural Gas remained the same until the 17th Nov, would the Future remain at 3604 and the cash price gradually make its way down from 3634 to 3604? so by 17th Nov, both Cash and Future would be at 3604?

Thanks

Edited by Spook1304
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Anyone assist with the question above?
EG, There is a future due to expire tomorrow - London Heating Oil.

The cash price is sitting at 811 and the future price is at 846 a 35 point gap.
Is the expectation that the price will close that gap by 1630 tomorrow?

From everything I've read from IG and other sources, the expiration price should converge with the spot price (or vice versa) and they should both be the same but a 35 point gap seems pretty large. 
Should I expect this gap to close or will it expire with a gap then be settled up afterwards?

Thanks

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From trading page it shows how the future will be settled which is based on the "Official closing price of the ICE Gas Oil Future on the last dealing day". Im curious to what the spot is will do when this is settled as everything I've read shows that these two prices should be the same on expiry so the spot should move to meet this or there should be some kind of adjustment to one of the instruments.

Can anyone from IG or the community advise what the expected course of action is here?

image.png.6307eb17bef62d251575b7f9837a0355.png
image.thumb.png.79f00f58219b004a1bafffa72c31cd19.png
image.thumb.png.9e4abc4dfd07a2886b1127df53d12f1b.png
image.png.963cf8735c2b9f9bb6c2d7039de1fc3c.png

image.png.d1f0ee5c1991127268472ba7e5d9e70a.png

Edited by Spook1304
added images
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So the future expired and there was still a large gap between the Spot price and the expired future.
This goes against what IG say on their site (below) and what @KoketsoIG mentioned above. The Spot market doesn't seem to track the futures price as it should. On the expiration of a future it should be equal to the spot price. I've emailed the helpdesk asking for an explanation and exactly what the Spot market tracks as the spot and future (which should converge) don't seem to be tracking/calculating as the IG website suggests (and every other source on futures as posted above).

Any input from the community/IG is welcome.
image.thumb.png.9c2148bcfadbd2da27f8a73705474b0c.png

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1 hour ago, Spook1304 said:

So the future expired and there was still a large gap between the Spot price and the expired future.
This goes against what IG say on their site (below) and what @KoketsoIG mentioned above. The Spot market doesn't seem to track the futures price as it should. On the expiration of a future it should be equal to the spot price. I've emailed the helpdesk asking for an explanation and exactly what the Spot market tracks as the spot and future (which should converge) don't seem to be tracking/calculating as the IG website suggests (and every other source on futures as posted above).

Any input from the community/IG is welcome.
image.thumb.png.9c2148bcfadbd2da27f8a73705474b0c.png

Hi @Spook1304,

Thank you for being a valued member of our community. Please note that the initial post was about when futures contracts expire and your subsequent replies were not clear about what you were asking. It seemed as if you were asking us to predict the spot price at the future's expiry.

Also please note that we have mentioned that the cash diverts towards the future, meaning the price tracks and when a futures contract expires, the price of the futures contract at expiry is nearly the same as the cash spot price.

Thanks,

KoketsoIG

Please rate us on Trustpilot: IG Trustpilot 

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11 minutes ago, KoketsoIG said:

Hi @Spook1304,

Thank you for being a valued member of our community. Please note that the initial post was about when futures contracts expire and your subsequent replies were not clear about what you were asking. It seemed as if you were asking us to predict the spot price at the future's expiry.

Also please note that we have mentioned that the cash diverts towards the future, meaning the price tracks and when a futures contract expires, the price of the futures contract at expiry is nearly the same as the cash spot price.

Thanks,

KoketsoIG

Thanks for the reply @KoketsoIG.
My question is mainly around the convergence between the expiring future and the spot price. At the time, I was monitoring the Nov 23 London Gas Oil Future and spot price. At expiry, there was still a fair gap between the two instruments. Where-as all of the literature (both IG and otherwise) has said this should not be the case.
Unfortunately I am unable to confirm what the future price was at the time as it is no longer on the platform. 

Can you confirm 2 things for me:
1 - Do the spot and future markets converge upon the future's expiry (are they the same price when the futures contract expires)?
2 - Can you provide the settlement price for the Nov 23 London Gas Oil Future Contract AND the spot price at that time? My expectation is that these should be the same value (or very close).

Thanks again for the reply. 

Edited by Spook1304
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17 hours ago, Spook1304 said:

Thanks for the reply @KoketsoIG.
My question is mainly around the convergence between the expiring future and the spot price. At the time, I was monitoring the Nov 23 London Gas Oil Future and spot price. At expiry, there was still a fair gap between the two instruments. Where-as all of the literature (both IG and otherwise) has said this should not be the case.
Unfortunately I am unable to confirm what the future price was at the time as it is no longer on the platform. 

Can you confirm 2 things for me:
1 - Do the spot and future markets converge upon the future's expiry (are they the same price when the futures contract expires)?
2 - Can you provide the settlement price for the Nov 23 London Gas Oil Future Contract AND the spot price at that time? My expectation is that these should be the same value (or very close).

Thanks again for the reply. 

Hi @Spook1304,

We hope you had a good evening.

1. Yes, they move towards each other.

2. The NOV 23 was 812.75, for the spot do you want our undated or the actual underlying?

Thanks,

KoketsoIG

Please rate us on Trustpilot: IG Trustpilot 

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8 hours ago, KoketsoIG said:

Hi @Spook1304,

We hope you had a good evening.

1. Yes, they move towards each other.

2. The NOV 23 was 812.75, for the spot do you want our undated or the actual underlying?

Thanks,

KoketsoIG

Would you be able to provide the undated value and the underlying for that time? What underlying is it that the undated market tracks?
From the platform, the closing price for the undated (at 4pm UK time on 10th Nov) was 797.7:
image.png.e1c17d603ec75bb3921cc9a97bfc074c.png

Do I have the wrong prices/times or was there still a 15.05 point basis between undated and the Nov 23 future?

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