Sometimes referred to as a delivery month, a contract month is the month of the calendar year in which a futures contract is slated to expire or otherwise be fulfilled. Settlement of a futures contract does not necessarily have to wait until the contract month, but the terms of the agreement must be fulfilled by the end of the contract month stated. The inclusion of an essential delivery date makes it possible to settle the contract by the end of the stated month provides both the buyer and the seller with a window of time in which to fulfill their obligations to one another and consider the contract completed.
There are also other names that are sometimes used to identify the contract month. In situations where the delivery is scheduled for a specified date in the future, it may be referred to as a forward month. When a date range that spans more than a single thirty-day period is involved, the actual delivery time may be known as the earliest month or the spot month. The exact terminology will vary depending on the provisions of the futures contract and local custom. To avoid confusion, contracts prepared for international investors sometimes reference the contract month and also one or two other terms, noting that all the terms refer to the same time frame.
In most situations, the seller is expected to notify the buyer regarding the actual date for the delivery to occur. This provides the buyer time to make arrangements to receive the delivery. This can be especially important if the futures contract involves the physical reception of some type of commodities that require storage pending their sale by the buyer. In many cases, the buyer will make an arrangement in advance, noting that the delivery may occur at any time during the contract month. This makes it possible to move quickly to finalize delivery arrangements once the seller is ready to fulfill the terms of the contract.
Identifying the contract month is helpful for both parties. The buyer has a good of idea of when to expect delivery of the futures, making it much easier to determine when it will be possible to earn a return on the investment. The seller also has the advantage of knowing when the delivery must be prepared and how to execute that delivery in a timely manner. For both the buyer and the seller, determining the delivery date and the related expiration date of the futures contract also provides the benefit of being able to plan future investments once the current contract is completed.
