A futures contract is a standardized exchange-traded agreement whose price refers to a specified underlying and quantity. It creates obligations for both sides. Depending on the contract, final settlement uses physical delivery or cash.

Unlike an option buyer, a futures buyer does not merely purchase a right that can be left unused. An open futures position has margin and settlement obligations. An offsetting trade normally closes the market position; a position carried into the delivery or final-settlement process follows the contract and broker rules.

Futures Contract Specifications

The Underlying

The underlying can be a commodity or a financial reference such as an interest rate, currency or stock index. Contract specifications define what the price represents and how it settles.

Exchange

Identify the exchange and the exact product. Historical names and product locations can change; current resources include:

Symbol

A product root, contract month and year identify a particular futures series. Broker symbols can differ, so check the contract description and specifications.

Contract Size (or Trading Unit)

The contract size states the amount and unit of the underlying commodity represented by each futures contract (E.g. 1000 barrels of crude oil or 50 troy ounces of platinum).

Price Quotation

Quotation units convert a price change into money. A contract can be quoted in currency per unit, cents, index points or another convention. Use its trading unit and tick value rather than assuming the displayed number is the total contract value.

Grade of Deliverable

For physically delivered contracts, specifications can define grade, quality, delivery location and permitted alternatives or adjustments. These details affect the relationship between the futures price and a business’s actual cash-market exposure.

Delivery Date

Physical-delivery contracts can have a notice and delivery process extending over specified days. Cash-settled contracts instead use a final settlement calculation. Identify the relevant dates and broker cutoffs for the exact month.

Last Trading Day

The last trading day need not equal the first notice day, delivery day or final-settlement date. A broker may require customers to close earlier. Positions not offset in time remain subject to the applicable delivery or cash-settlement obligations; do not assume all futures require physical delivery.

Delivery Months

The exchange defines listed contract months and expiration schedules for each product. Check the actual series; not every product offers every calendar month.

Futures Trading

One can trade futures contracts via a regulated futures exchange.

Margin and the price range

Initial margin is collateral rather than a purchase price or loss cap. Mark-to-market losses can require additional funds or cause liquidation. Some futures can trade below zero, so a stock-style zero price floor is not universal. See the complete margin example.

Content reviewed:

References: CME futures education; CME product history; JPX commodity market transfer. Editorial standards.