Calculation and mechanics
A continuous future follows one particular futures contract at a time and switches to the next one according to a defined roll rule. Depending on the data provider, the switch can happen, for example, a few days before expiry or based on trading volume or Open Interest.
Because two consecutive futures contracts usually do not trade at the same price, a visible price gap can appear at the switch. It often arises solely from the price difference between the two expiry months and not from a corresponding market move in the underlying.
There are different methods for dealing with such roll gaps. An unadjusted series chains the actual prices of the individual contracts directly. This keeps the historical price levels but can produce abrupt changes on the roll day.
A back-adjusted series shifts earlier price data by the price difference at the roll. This produces a smoother course but changes the historical price levels after the fact.
The method used affects charts, technical indicators and longer-term analyses. When using a continuous contract it should therefore always be taken into account whether earlier price data has been adjusted or not.
Additive back adjustment: adjusted old price = old price + (price new contract - price old contract on the roll day)
Distinction
The front month is a single futures contract with a fixed expiry. A continuous future, by contrast, links several contracts one after another into a longer time series.
The Futures Term Structure shows several expiry months at the same time at one point in time. The continuous future, by contrast, shows the price development over time.
Names such as ES1! or ES=F are symbol conventions of different platforms and data providers. They stand for continuous futures series, not for separate futures contracts.
Related terms
- Front Month and Month Codes (Front contract, F G H J K M N Q U V X Z)
- Futures Term Structure (Futures curve, forward curve)
- Roll Yield (Roll return, roll effect)
- EMA21 (Exponential moving average over 21 periods)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.