TL;DRThe futures contract closest to expiration. Most liquid, most traded, tightest spreads. This is the contract you should be trading.
The front month (also called the nearby or prompt month) is the contract with the nearest expiration. For equity index futures, this changes quarterly. For monthly contracts like crude oil, it changes every month.
The front month has the most volume and tightest spreads. It's where the majority of trading activity concentrates.
The front month has the best liquidity, meaning lower trading costs and better fills. As expiration approaches and traders roll, volume shifts to the next month.
The crossover where the next month becomes more liquid happens about 8-10 days before expiration for equity index futures. Most retail traders should trade the front month until roll day, then switch.
Front month contracts are most responsive to news, economic data, and sentiment. They move faster than deferred contracts.
As expiration approaches, the front month converges toward spot or fair value. The last few days before expiration can see lower liquidity as remaining positions close. Most traders have moved to the next month by this point.
Identifying the front month
It's February 15. ES quarterly contracts: March, June, September, December.
Front month is March. Highest volume, tightest spreads. After March expiration (third Friday), June becomes front month. Roll around March 10-12.
Volume shift
March 10. ES March volume: 800K. ES June volume: 1.2M.
Volume has shifted to June. Even though March hasn't expired, June is now more liquid. Trade June from here.
Trading the wrong contract month
Always verify you're on the front month (or next month after roll day). Wrong month = wider spreads and worse fills.
Staying in the expiring contract after volume shifts
When volume moves, move with it. Don't wait until expiration day.
Assuming all products have the same contract schedule
ES expires quarterly. CL expires monthly. ZC has specific delivery months. Check each product.