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Specifications of Futures Contract

A futures contract specifies the asset being traded, the quantity, delivery date, expiration date, minimum price increment, daily marking to market, and is traded on a regulated exchange with a clearinghouse. Key components include the underlying asset, contract size, delivery date, expiration date, tick size, daily valuation, and involvement of an exchange and clearinghouse. Specifications can vary by exchange and asset.

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Meer Mazhar Ali
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129 views

Specifications of Futures Contract

A futures contract specifies the asset being traded, the quantity, delivery date, expiration date, minimum price increment, daily marking to market, and is traded on a regulated exchange with a clearinghouse. Key components include the underlying asset, contract size, delivery date, expiration date, tick size, daily valuation, and involvement of an exchange and clearinghouse. Specifications can vary by exchange and asset.

Uploaded by

Meer Mazhar Ali
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Specifications of Futures contract:

A futures contract is a standardized agreement between two parties to buy or sell a particular
asset at a predetermined price and date in the future. The specifications of a futures contract
include the following components:
1. Underlying Asset: The futures contract specifies the type of asset that is being traded,
such as commodities (e.g., crude oil, gold, wheat), financial instruments (e.g., stock
indices, bonds), or currencies (e.g., Euro, Japanese Yen).
2. Contract Size: It defines the quantity of the underlying asset that is being traded in a
single futures contract. For example, a crude oil futures contract may have a contract size
of 1,000 barrels.
3. Delivery Date: The futures contract specifies the date on which the delivery of the
underlying asset will occur. It is also known as the contract expiration date or delivery
month. Futures contracts have standardized delivery dates, typically monthly or
quarterly, depending on the asset.
4. Contract Expiration: This refers to the last trading day of the futures contract. After this
date, the contract expires, and trading in that particular contract ceases. However, most
market participants close out their positions before the expiration date by either
offsetting their positions or rolling them over into a new contract.
5. Tick Size: It represents the minimum price fluctuation or the minimum price increment at
which the futures contract can trade. Tick size varies for different assets and exchanges.
For example, a tick size of $0.01 may be applicable for an e-mini S&P 500 futures
contract.
6. Contract Valuation: Futures contracts are marked-to-market daily, meaning that the
gains or losses on the positions are settled on a daily basis. The contract valuation is
determined by multiplying the daily settlement price by the contract size.
7. Exchange and Clearinghouse: Futures contracts are traded on regulated exchanges, such
as the Chicago Mercantile Exchange (CME) or the Intercontinental Exchange (ICE). These
exchanges provide a centralized marketplace for buyers and sellers to trade futures
contracts. Additionally, a clearinghouse acts as the counterparty to all transactions,
ensuring the financial integrity of the market by guaranteeing settlement.
It's important to note that the specifications of futures contracts can vary depending on the
exchange and the asset being traded. Traders and investors should refer to the specific contract
specifications provided by the exchange to obtain accurate and up-to-date information.
Pricing in futures and forward contracts

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