What are the key specifications I need to know for a futures contract?

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AcadiFi · Accepted Answer

Futures contract specifications are the standardized terms the exchange defines so every contract is fungible. Six elements matter most.

1. **Underlying asset**: The exact commodity or financial instrument, including grade. For example, CME's WTI crude futures specify light sweet crude with sulfur below 0.42%.

2. **Contract size**: The notional quantity per contract. E-mini S&P 500 futures are $50 per index point; corn futures are 5,000 bushels.

3. **Delivery month**: Exchanges list specific months (March, June, September, December for many financials).

4. **Price quotation**: Units in which prices are quoted (cents per pound, index points, etc.).

5. **Tick size and value**: Minimum price increment. For E-mini S&P, one tick is 0.25 index points worth $12.50.

6. **Delivery location and terms**: Where and how settlement happens, either physical delivery or cash settlement.

Imagine a trader named Priya Nadkarni entering a silver futures trade. She needs to know each contract covers 5,000 troy ounces, ticks in half-cents ($25 per tick), and delivers at COMEX-approved vaults in New York. Without these standardized terms, she couldn't offset the position with another trader who had different expectations.

Standardization is what makes futures liquid and clearable, distinguishing them from bespoke forward contracts.

What are the key specifications I need to know for a futures contract?

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