What is Delivery Month in Futures Contract?
In a futures contract, the delivery month is the specific month during which the seller is obliged to deliver the underlying commodity and the buyer must accept delivery. Unlike spot trading, where the transaction and delivery happen almost immediately, futures contracts are agreements to buy or sell a commodity at a predetermined price on a future date.
The delivery month tells both parties exactly when the physical exchange or cash settlement, in some cases will occur. In India, major commodity exchanges like the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX) list contracts for various commodities such as gold, crude oil, and agricultural products, each with its own set of allowable delivery months.
Understanding the delivery month is crucial for traders, hedgers, and investors. It affects liquidity, pricing, and the roll-over of positions from one contract to the next. Being aware of when a contract approaches its delivery month helps traders decide whether to close out their positions, roll their contracts forward, or prepare for actual delivery of the commodity. This knowledge is particularly important in India, where seasonal factors such as monsoon rains affecting agricultural output can influence both supply and demand dynamics as the delivery month approaches.
Definition of Delivery Month in Futures Contract
The delivery month of a futures contract is officially defined as the month during which the contract expires and the delivery process is initiated. Every futures contract has a set of months known as contract months in which it can be traded. Among these, one month is designated as the delivery month, after which no trading in that specific contract is allowed. After the last trading day (typically a few business days before the actual delivery date), any open positions are either physically settled (the actual goods change hands) or cash settled, depending on the contract specifications.
In the Indian context, exchanges publish contract specifications that include the delivery months for each commodity. For example, MCX may offer gold futures contracts with delivery months in the current month plus several successive months (e.g., April, June, August, October, and December). Traders need to be mindful that once the contract enters its delivery month, margin requirements may change, and the contract’s price behavior can become more volatile due to the narrowing gap between futures and spot prices.
How does Delivery Month in Futures Contract Work?
When you enter into a futures contract, you agree on a price today for a transaction that will happen in the future. The delivery month is the window during which that future transaction must be completed. Here is how it generally works:
- Contract Listing and Trading: Exchanges list futures contracts with a series of delivery months. For example, MCX might list crude oil futures for delivery in April, May, June, and up to nine months ahead. Traders buy or sell these contracts based on their market views or hedging needs.
- Last Trading Day: Each contract has a last trading day, often a few business days before the delivery month begins. On this day, all trading in that specific contract ceases. Traders who do not want to take (or make) delivery must close their positions before this date by executing an opposite trade.
- Position Closing and Rollover: If a trader wants to maintain exposure beyond the delivery month, they must roll over their position closing the current-month contract and opening a position in a later-month contract. Rolling over usually incurs transaction costs and may lead to gains or losses depending on the price difference between the two contracts.
- Delivery Process: If a position remains open at the time of expiry, the exchange facilitates the delivery process. For physically settled contracts, the seller must deliver the specified quantity and quality of the commodity at an approved delivery location. In cash-settled contracts common for indices or certain metals the difference between the contract price and the settlement price is paid in cash rather than delivering physical goods.
- Settlement: Upon completion of delivery or cash settlement, the contract is closed, and obligations are cleared. The delivery month serves as the final window for these settlement activities.
Futures Delivery Month Codes
To standardize the identification of delivery months, exchanges use alphabetical month codes. These codes appear alongside the year in the contract symbol. Below is the most widely used set of month codes:
| Code | Month |
|---|---|
| F | January |
| G | February |
| H | March |
| J | April |
| K | May |
| M | June |
| N | July |
| Q | August |
| U | September |
| V | October |
| X | November |
| Z | December |
For example, on MCX, the symbol for a gold futures contract expiring in December 2025 would be GCZ25 (“GC” for gold, “Z” for December, and “25” for the year). Understanding these codes helps traders quickly identify contract expiry and manage positions across different delivery months.
Examples of Delivery Month in Futures Contract
Gold Futures on MCX:
Suppose it is March 2025, and you wish to trade gold futures. MCX lists gold contracts for April (J25), June (M25), August (Q25), October (V25), and December (Z25). If you choose the August contract (Q25), its delivery month is August 2025. You must close or roll your position before the last trading day in August or prepare for physical delivery at MCX-approved vaults.
Crude Oil Futures on MCX:
Consider crude oil futures trading in June 2025. The contract months available might include June (M25), July (N25), and so on. If a trader holds a June contract (M25) into its delivery month, they may either arrange to deliver or accept delivery of 1,000 barrels of crude at designated ports or opt for cash settlement if available.
Soybean Futures on NCDEX:
NCDEX lists agricultural futures such as soybeans with delivery months aligned to harvest seasons. For instance, the July 2025 contract (N25) would have its delivery month in July, aligning with the post-monsoon harvest window. Farmers and processors use these contracts to lock in prices ahead of the actual crop arrival.
Copper Mini Futures on MCX:
Copper mini contracts might have four delivery months in a year. If you buy the September 2025 contract (U25) in April 2025, you have until the last trading day in September to decide whether to roll over or settle.