Editing Futures contract (section)

==Expiry and final settlement==
===Expiry===
Expiry (or "expiration" in the U.S.) is the time and the day that a particular delivery month of a futures contract stops trading, as well as the final settlement price for that contract. For many equity index futures and interest rate futures as well as for most equity (index) options, this happens on the third Friday of certain trading months. On this day the ''back month'' futures contract becomes the ''front-month'' futures contract, and the ''front-month'' futures contract becomes the ''back month'' futures contract. 

For example, for most [[Chicago Mercantile Exchange|CME]] and [[Chicago Board of Trade|CBOT]] contracts, at the expiration of the December contract, the March futures become the nearest contract. During a short period (perhaps 30 minutes) the [[underlying]] cash price and the futures prices sometimes struggle to converge. At this moment the futures and the underlying assets are extremely liquid and any disparity between an index and an underlying asset is quickly traded by arbitrageurs. At this moment also, the increase in volume is caused by traders rolling over positions to the next contract or, in the case of equity index futures, purchasing underlying components of those indexes to hedge against current index positions. 

On the expiry date, a [[Europe|European]] equity arbitrage trading desk in [[London]] or [[Frankfurt]] will see positions expire in as many as eight major markets every approximate half hour. Exchanges implement strict limits on how much exposure an entity may have closer to expiration as an effort to avoid any volatility around final settlement.

===Final settlement===
Final settlement is the act of [[wikt: consummating|consummating]] the contract, and can be done in one of two ways, as specified per type of futures contract:
* '''Physical delivery''' − the amount specified of the underlying asset of the contract is delivered by the seller of the contract to the exchange, and by the exchange to the buyers of the contract. Physical delivery is common with commodities and bonds. In practice, it occurs only on a minority of contracts. Most are canceled out by purchasing a covering position—that is, buying a contract to cancel out an earlier sale (covering a short), or selling a contract to liquidate an earlier purchase (covering a long). The majority of energy contracts on the [[NYMEX]] use this method of settlement upon expiration. The vast majority of contracts do not end up settling for physical delivery; holders will either close out the position by reversing their exposure, or, for some physical traders, settle via an EFP (Exchange For Physical) arrangement with a counterparty holding the opposite position. Some Treasuries contracts on the CBOT also settle via physical delivery. 
* '''Cash settlement''' − a cash payment is made based on the underlying [[reference rate]], such as a short-term interest rate index such as 90 Day T-Bills, or the closing value of a [[stock market index]]. The parties settle by paying/receiving the loss/gain related to the contract in cash when the contract expires.<ref>[[Wikinvest: Cash settlement|Cash settlement on Wikinvest]]</ref> Cash settled futures are those that, as a practical matter, could not be settled by delivery of the referenced item—for example, it would be impossible to deliver an index. A futures contract might also opt to settle against an index based on trade in a related spot market. [[Intercontinental Exchange|ICE]] [[Brent Crude|Brent]] futures use this method of settlement.

Final settlement is distinct from trade [[Settlement (finance)|settlement]], which confirms that the security has been fully paid for and delivered, and [[Mark-to-market accounting|mark-to-market]] settlement, which keeps the price of the contract commensurate with the price of the underlying asset.