A continuous futures contract is an artificial financial instrument derived by linking multiple individual futures contracts with different expiration dates. This method creates a smooth price series that helps traders identify long-term trends and patterns, eliminating the need to manually switch between individual contracts. You can learn more about the switching continuous futures contracts on TradingView Chart in this article.
1! continuous contract (front month)
The 1! continuous contract represents the front or nearest expiration month contract. It rolls over to the next contract when the current front-month contract expires. This series is widely used for short-term analysis and trading, as it provides an accurate reflection of the current market sentiment and price movements.
2! continuous contract (second month)
The 2! continuous contract represents the second nearest expiration month contract. It rolls over to the next contract upon the expiration of the current second-month contract. This series is often used for medium-term analysis and trading, as it captures the market's expectations for the next contract period and provides insight into potential price movements.
Benefits of continuous futures contracts
Continuous futures contracts offer several advantages for traders and analysts:
- Seamless price series: Continuous contracts provide a smooth price series that facilitates trend analysis and pattern identification, helping traders make better-informed decisions.
- Simplified analysis: By creating a single continuous price series, these contracts eliminate the need to manually switch between individual futures contracts, simplifying the analysis process.
Limitations of continuous futures Contracts
Despite their benefits, continuous futures contracts also have some limitations:
- Artificial prices: Since continuous contracts are synthetic instruments, they may not accurately represent the actual traded prices of individual futures contracts.
- Rollover effects: Rollover periods can cause sudden price jumps or gaps, which may impact technical analysis and trading strategies. See this article to learn more about back-adjustment for continuous futures on TradingView Charts.
- Trading limitations: It is possible to trade only 1! continuous contracts for a limited number of exchanges. Currently, trading is available for 1! continuous contracts only for the CME exchange. However, 2! continuous contracts are not available for trading. You can switch to a 1! continuous contract or a contract with an expiration date for trading.You can learn more about continuous futures trading in this article.