What Happens If You Hold a Futures Contract Until Expiration?

Hold a futures contract to expiration and one of two things happens, depending on what the contract itself provides for: it is settled in cash, or someone delivers the underlying commodity and someone else receives it. The CFTC's glossary defines a futures contract as an agreement that can be discharged in either of two ways, by delivery or by offset. In the April 2020 NYMEX WTI expiry that CFTC staff documented in detail, nearly all the open interest had been closed out or rolled into later expirations before the final day.

What happens if you hold a futures contract until expiration?

At expiration a futures contract is discharged by its own terms. In a cash-settled contract, the CFTC glossary's entry for cash settlement has the short pay the buyer the underlying's cash value, or a sum keyed to an index level or a price, by whatever procedure the contract sets out. The price a cash-settled contract is settled at on maturity is what the glossary's separate entry calls the final settlement price, fixed by a procedure the exchange specifies. Nothing physical moves and nothing arrives in the account except money.

In a physically delivered contract, the same glossary treats delivery as covering three things that can pass between the two sides: the actual commodity, its cash value, or a delivery instrument covering it. A long, in the glossary's second sense of the word, is a position whose holder is obliged to take delivery; a short, in its first sense, is the sell side of an open contract. The obligation is not a penalty for inattention, it is what the contract is.

Which of the two applies is a provision written into the contract — the glossary's physical delivery entry calls it exactly that — rather than a choice made at the end. A trader who wants neither outcome closes out by trading the same delivery month in the opposite direction and equal size, which the glossary calls offset, or rolls into a later month. CFTC staff describe periodic rolling as something the expiration cycle makes common to futures trading generally, and when futures contracts roll over covers the schedule the index contracts keep.

What is the difference between cash settlement and physical delivery?

Cash settlement ends the contract with a payment; physical delivery ends it with a commodity or a document of title changing hands.

Financial products sit on both sides of that line. The CFTC's entry for physical delivery notes that with a financial derivative what gets delivered is the underlying asset itself — often bonds, the entry says — and for bond and note futures the glossary defines cheapest-to-deliver by implied repo rate: within the deliverable class, the issue whose rate is highest. Our comparison of the E-mini and Micro E-mini S&P 500 contracts works through a pair of index contracts in detail.

What is first notice day, and why does it matter before the last trading day?

First notice day is the earliest day a notice of intent to deliver can be received against a futures position, and the CFTC's glossary is explicit that the date is not uniform: it varies by commodity and by exchange. A notice day is any day such notices may be issued. The delivery month is the month a contract matures in, and the month delivery can settle it in — or, where a contract runs a delivery period, the month that period starts.

The reason this date matters is that the two sides of the contract are not symmetrical. To tender, in the glossary's wording, is for the seller to notify the clearing organization of an intention to start delivery; the notice is then assigned onward to a buyer. The short starts the process and the long is the side a notice lands on. One broker's published close-out policy shows the same asymmetry in its own deadlines: in its worked example for December 2012 corn, the cutoff it applies to long positions is 29 November 2012, keyed to the contract's first position date, while the cutoff for shorts, keyed to the last trading date, is 14 December.

One quirk worth knowing: the CFTC glossary has no entry for "last trading day" at all, and its "expiration date" entry defines the automatic expiry of an option, not of a futures contract. Even first notice day, which it does define, is left to vary by commodity and by exchange — so the dates that bind a position have to be checked contract by contract, because the glossary will not supply them. The four exchanges available on a Lumen account are listed in the instruments article.

How does a delivery actually get assigned?

Delivery runs through the clearing organization, not between two traders who found each other. The seller presents a notice of intent to deliver to the clearing organization before delivery, and the clearing organization assigns it, along with the delivery instrument that follows, to a buyer. Seeing that each contract's delivery procedure is conducted properly is part of what the glossary says a clearing organization is charged with.

The delivery notice itself is a written notice from the seller, for a particular date, against an open short position, and it travels through the clearing organization. It is not the document that transfers title. That is the delivery instrument: a warehouse receipt or a shipping certificate. A warehouse receipt certifies that a commodity is held at a licensed warehouse an exchange recognises for delivery purposes, and stock in exchange-approved storage whose receipts can be used to deliver against futures is what the glossary calls deliverable stocks.

Two consequences follow for anyone who ends up in the process by accident. The buyer does not choose which notice or which instrument arrives — the clearing organization assigns both. And the money involved is not the last traded price: settlement prices — the daily figures a clearing organization uses to clear every trade and settle accounts among its clearing members — are what invoice prices for deliveries come from.

Will a broker close an expiring position before delivery?

Some will, but that is a firm-level policy rather than an exchange rule, and the deadlines belong to the firm. One broker's published close-out policy states that it will not let clients make or take delivery on certain physically settled futures, and defines a close-out period running up to a contract's expiration, inside which it may liquidate the expiring position with no further warning to the client.

The same policy keys the two sides to different dates: the cutoff for long positions is tied to the contract's first position date, the cutoff for shorts to its last trading date — in its December 2012 corn example, two weeks apart. The policy also carves out exceptions, including some COMEX precious metals contracts where a client may ask for physical delivery and certain currency futures, and it leaves the account holder to keep track of which deadline each product carries.

Read that as a warning rather than a safety net. Automatic liquidation is a house rule, not a feature of the contract: this one covers certain physically settled futures and excepts others, and the account holder is the one expected to know which deadline applies. The contract's own terms are the part that always binds.

How many contracts were still open at the April 2020 WTI expiry?

Very few, and the CFTC's staff report on that episode shows the scale of the exit. In the expiring May 2020 NYMEX WTI contract, open interest reached its high for the month — 634,727 contracts — on 2 April. By the contract's expiry on 21 April, the number still open stood at 2,427, under the 2,815 average across contracts that had expired in the preceding twelve months, and well under one percent of the May contract's own peak.

The report describes the general pattern too: about four weeks ahead of an expiry, open interest usually begins to fall. The expiring month is turning into a market about physical settlement by then, and anyone without a reason to be there has moved to the month listed behind it. Staff use the word compression for that reduction, which happens through trading or netting rather than anything special.

Who is left at the end is the other half of the answer. The report puts the positions that typically survive to expiration in the hands of commercial producers and merchants, of swap dealers, and of a handful of other reportable traders, and finds the 21 April split across those groups roughly in line with expiries over the previous twelve months. Those are the categories the weekly positioning data splits out, which the Commitments of Traders report explainer walks through.

What did April 2020 show about the delivery month?

April 2020 showed what a delivery month looks like when the delivery point is running out of room. The NYMEX WTI contract covers 1,000 barrels of crude that meets standards the exchange sets, physically deliverable, with Cushing, Oklahoma as the delivery point, and Cushing's available working storage was near capacity by March 2020 — the CFTC report, citing EIA figures, puts Cushing's 75.8 million barrels of capacity at about 44% of Midwest crude working storage, and roughly 11% of US commercial crude storage overall.

The report is careful not to name a root cause for what followed — it says in terms that it does not identify the root cause of any price movement around 20 April — and a reader should be equally careful. What it records is the sequence: on 20 April 2020, the penultimate trading day with expiry the next day, the May contract opened its session at $17.73 a barrel, traded down to -$40.32 intraday, and settled at -$37.63, the first negative price for the contract in the 37 years it had been listed. The interim report carrying that account was published in November 2020.

Even the settlement method was different in those final days. Under the exchange's rules the nearest listed month stops being the active month two business days ahead of the spot month's expiration, so June took the active slot on Friday 17 April, and the May contract's 20 April settlement was struck from the volume-weighted average of calendar spread trades in a two-minute window, 2:28 to 2:30 p.m. ET.

What does expiration mean on a funded account?

On an account with a daily flat rule, delivery never arrives, because the position cannot survive into the delivery month's final days as an open trade. On a Lumen account all positions must be closed by 4:45 PM ET under the trading hours rule, anything still open at that point is closed automatically, and you cannot hold a position overnight or over a weekend. A Lumen account is also a simulated account trading live market data, with real payouts on the profits, so there is no brokerage account in your name for a delivery notice to reach. There is no expiry hold and nothing to be assigned.

What still reaches you is the behaviour of the market around the expiry. The instrument table lists crude oil, corn and the COMEX gold and silver contracts alongside the index complex, and those are products the sources here show heading towards a delivery process: WTI crude is 1,000 barrels deliverable at Cushing, and a broker's close-out policy treats corn and certain COMEX precious metals as contracts where delivery is in play. As open interest compresses, the expiring month thins out while the next one fills up, and a chart still pointed at the old symbol is a chart of the quieter market — so the roll date belongs in your calendar alongside the expiry.

FAQ

Do you really receive barrels of oil if you forget to close a crude futures contract?

The obligation is real: the CFTC glossary's second sense of a long is a position whose holder is obliged to take delivery, and the NYMEX WTI contract is 1,000 barrels of crude with Cushing, Oklahoma as the delivery point. In practice it rarely gets that far. One broker's published policy says it will not let clients make or take delivery on certain physically settled futures and may liquidate an expiring position with no further warning, and in the May 2020 WTI expiry nearly all the open interest had gone, closed out or rolled forward, before the last day.

What is the difference between first notice day and last trading day?

First notice day is the earliest a notice of intent to deliver can be received against a futures position, and the CFTC glossary says the date is not the same from one commodity or exchange to the next. The glossary has no entry for last trading day, so it is no help on the second date. One broker's close-out policy uses both, a fortnight apart: in its December 2012 corn example the long cutoff, keyed to the first position date, is 29 November 2012, and the short cutoff, keyed to the last trading date, is 14 December.

Can a futures contract settle at a negative price?

Yes. The May 2020 NYMEX WTI contract settled at -$37.63 per barrel on 20 April 2020, after opening that session at $17.73 and trading as low as -$40.32. CFTC staff recorded it as the first negative price for the contract in the 37 years it had been listed, in a period when storage at the contract's delivery point was near its capacity. The staff report does not identify a root cause for the move.