Expiry

The term expiry is used in relation to the maturity date or the expiration date of a financial instrument or derivatives. It represents the date at which a particular contract or agreement ceases to be valid and the associated rights and obligations come to an end.

Understanding expiry in detail

Futures Contracts – In currency trading, expiry refers to the last day for traders to fulfill their obligations in agreements to buy or sell a specific currency at a predetermined exchange rate on a future date.

Options Contracts – Expiry marks the end of options contracts, where buyers have the right to buy or sell a currency pair at a specific price before or on the expiry date.

Settlement – At expiry, futures contracts may involve physical delivery or cash settlement based on the price difference, while options contracts are settled based on profitability.

Rollover – Traders can extend positions beyond the expiry dates of futures or options contracts through rollover, allowing them to maintain their positions by closing and opening new ones with later expiry dates.

What is the impact of expiry on currency markets?

Increased Volatility: As the expiry date approaches, there can be an increase in trading activity and volatility as market participants adjust their positions or close out expiring contracts.

Liquidity Fluctuations: The liquidity in the market may fluctuate around the expiry date, especially for futures and options contracts, as traders close or roll over their positions. This can affect the ease of executing trades and may lead to wider bid-ask spreads.

Position Management: Traders need to actively manage their positions nearing expiry. They may choose to close out expiring positions, roll them over to a later date, or adjust their strategies based on market conditions and expectations.