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Futures trading is based on contract agreements. Their main task is to standardize the conditions for trading. The contracts standardize the quantity of traded assets, minimum price movements, price limits, trading hours, etc..
If you are interested in trading a particular commodity, I would recommend you to visit the site of the exchange first and seek the "contract specifications" or general information about the products. There you can find basic information about all the products. E.g. for The Chicago Board of Trade you can find it here.
Example of Contract Specifications:
I will give you an example of a Corn contract specifications, which is traded on the Chicago Board of Trade (now it is a member of the CME Group).
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Contract size
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5000 bushels |
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Tick size
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¼ cent/bushel (12,5 USD) |
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Price Quote
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Cents/Bushel |
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Contract Months
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Dec, Mar, May, Jul, Sep |
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Last Trading Day
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The business day prior to the 15th calendar day of the contract month. |
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Last Delivery Day
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Second business day following the last trading day of the delivery month. |
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Trading hours
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Electronic 6,00 PM – 6,00 AM and 9,30 AM – 1,15 PM Central Time Sun-Fri
Open Auction 9,30 AM – 1,15 PM Central Time Mon-Fri
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Ticker Symbol
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Open Auction – C
Electronic – ZC
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Daily Price Limits
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0,30 USD/bushel (1500 USD/contract) |
The table below shows the basic contract information. The most important are the information on price and quantity traded.
- If we decide to buy one contract of Corn, we buy it in a standardized quantity of 5000 bushels. What exactly a Bushel is can be find here.
- Tick size (minimum price movement up or down) is the ¼ cents per bushel. This means that if the current price is e.g. 500 cents per bushel, only the minimal shift upwards to 500.25 cents, or downwards to 499.75 cents is allowed. We also know that the quantity traded on a contract is 5000 bushels. This means that if we buy the contract of corn for 500 cents on a bushel and it subsequently rises to 500.25 cents/bushel, so we have not earned just 0.25 cents, but 5000 times more, i.e. 12.5 USD. The minimum price move on a single contract of Corn is 12.5 USD - either upwards or downwards. Our earnings and loses are just 12.5 USD and its multiples - 25 USD, 37.50 USD, 50 USD, etc..
- Contract months are also a very important information. The contract months for a Corn are December, March, May, July, September. The September Corn can be traded already in January, but is likely that the Volume of such contract is very low so we will get worse trading conditions. The best way for us is to trade the nearest contract month, respectively month with the highest Volume. If it is January now, the most traded month, i.e. month with the highest Volume, will be probably the March.
- The price limits are also part of the contracts. They are described in a separate article (here). If you use the Stop Loss and Profit Target, you should not come into the situation of "locking the market." Price limit is the determination of the maximum daily price deviations from the previous day closing price. If the price, during a very volatile trading day, exceeds this limit (either upwards or downwards), the market is "locked". If the market went against us, this is a very unpleasant situation, cause the loss is very high. If ve were in a profitable trade, it can be a nice surprise to our trading account. There is a price limit of 30 cents/bushel for a contract of Corn, i.e. 1500 USD as a "permissible" price deviation on one contract and one trading day.
- Business hours are from 6.00 PM to 6.00 AM, followed by a break. Then the market starts to trade again from 9.30 PM to 1.15 PM. These hours are applicable to electronic trading. For Open Auction, the hours are from 9.30 AM - 1.15 PM.
In the contract specifications we can find all the necessary information about the traded commodity. I would recommend you to go carefully through all the specifications (whether you have them from the broker or the exchange website), as there may occur some erroneous information. The most important information is the one about the minimum price move in ticks and the USD. That is the basis for calculating our profits and losses. The commodity trading hours are also very important.
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