Understanding Futures Contracts

All futures and commodities contracts are standardized. This means they trade at a certain size and quantity. The anatomy of a futures contract breaks down like this:

Contract Size

Each contract has a certain size associated with the contract. For example, Crude Oil has 1,000 barrels, Gold has 100 ounces, and Silver is sized at 50 ounces, etc. The size of the contract is determined by the exchange that it is traded on.

Contract Month

Each commodity future has a specific contract month associated with it. For example, the E-mini S&P trades during the months of March, June, September and December. Commodity futures contracts may differ with regards to trading months.

Contract Value and Tick Size

Each commodity has a certain point value and tick value. Tick is the minimum increment that a commodity futures contract moves. Each commodity will differ as to the Dollar value for each tick. For example, the E-mini S&P contract minimum tick is $12.5 and a full point consists of four ticks which makes each point worth $50.

Understanding Futures Contracts

Each futures contract is denominated in a specific currency. For example, CME contracts are denominated in US dollars, but EUREX contracts, in contrast, are denominated in euros.

Remember:  Each commodity futures contract has a certain quality and grade. This is what they call “standardization”. For example, a Gold contract is 99% pure gold. Often you will see the same contract traded on different exchanges.

For example, you may see the crude oil traded in the CME and the crude oil on the ICE exchange. However, these contracts have different grade values. The CME trades “sweet crude” while the ICE exchange is trades Brent crude oil.

Types of Futures You Can Trade In Pakistan

Stock Indices: S&P 500, NASDAQ, DOW JONES and NIKKEI 225

Energies: Crude Oil, Brent Oil, and Natural Gas

Metals: Gold, Silver, Copper, Platinum and palladium

Currency Futures: Euro British Pound, Japanese Yen, Australian Dollar, and Canadian Dollar

Agriculture: Wheat, Rice, Red chili and Cotton

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