Contract Specifications
A futures contract is a contract to buy or sell a specific commodity of standardized quality at a certain date in the future and at a market-determined price (the Futures price). Futures contracts are typically traded on exchanges. CME Group comprises of four independent exchanges – Chicago Mercantile Exchange (CME), The Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), and the Commodity Exchange (COMEX). Trades are primarily executed electronically, but there are still trades being executed on the exchange trading floor.
A futures contract is a contract to buy or sell a specific commodity of standardized quality at a certain date in the future and at a market-determined price (the Futures price). Futures contracts are typically traded on exchanges. CME Group comprises of four independent exchanges – Chicago Mercantile Exchange (CME), The Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), and the Commodity Exchange (COMEX). Trades are primarily executed electronically, but there are still trades being executed on the exchange trading floor.
Each futures contract has its own specific contract specifications. Here is a list of those specifications.
- Contract size
- Notional value
- Deliverable grade
- Tick size (minimum fluctuation)
- Dollar value of a tick
- Commodity ticker symbol
- Trading hours
- Contract months traded
- Daily price limits
- Settlement
Let’s review some of the specifications using the WTI Crude Oil futures contract as an example.
Definitions
The contract size specification for the WTI Crude oil contract calls for 1000 barrels of WTI Crude oil.
Let’s assume crude oil is priced at $52.00/barrel. The current value of 1000 barrels of crude oil is 1000 x $52.00/barrel or $52,000. This is also known as notional value of the contract, or the funds required to buy 1000 barrels of oil using cash.
The deliverable grade for this contract is WTI or West Texas Intermediate crude oil. There are dozens of types of crude oil including Brent, and Nigerian Bonny just to name a few. WTI is referred to as a light sweet crude oil as opposed to heavier blends.
The Tick size is the minimum price fluctuation that a futures contract can make. For WTI Crude Oil, this is $0.01 or a penny. $0.01 times 1000 barrels equals $10.00 per tick.
Ticker Symbol: Like stocks, futures contracts all have symbols just like stocks. For WTI crude oil, the ticker symbol is CL. Since futures contracts expire, (unlike stocks which can be held “forever”) the symbol will also contain the month and year of expiry. Each month is represented by a letter code, for example “U” represents a September expiry and “Z” represents a December expiry. The symbol CLU0 would indicate WTI Crude Oil for September (U) 2020 (0) delivery. CLZ0 would be crude oil for December of 2020 delivery.
Contract Months: Not all futures contracts will have an expiry every month. For example, the S&P500 ES contract has quarterly expiries: March, June, September and December. WTI Crude Oil, CL is available for trading in all months.
Certain futures contracts have price limits. This means the contract price has certain limits up and down. This is part of the risk mitigation process of the exchange and it protects customers, brokers and the exchange from excessive price movements beyond a certain range.
Futures contracts have two primary types of settlement: Physical delivery—whereby you can take delivery of the actual commodity. In the case of CL, that would be 1000 barrels of WTI crude (they would be delivered to a terminal in Cushing Oklahoma and not your house!!) The other type of delivery is cash settlement whereby the investor gets the difference in cash debited or credited to his account depending on if he made or lost money on his trade.
Example specifications
Here is a table that summarizes the contract specifications for WTI crude at CME Group.
| Contract size | 1000 barrels of Light Sweet Crude (WTI) |
| Contract notional value | $52,000 (1000 barrels x $52/barrel) |
| Minimum tick size | $0.01 |
| Dollar value of one tick | $10.00 |
| Ticker symbol | CL |
| Trading hours | Sunday – Friday 5:00 pm – 4:00 pm CT with 60-minute break each day at 4:00 pm CT |
| Contract months | All months |
| Price limits | 600, 1200, 1800, 2400 |
| Delivery | Physical Delivery |
Source: CME Group
Each futures contract has its own contract specifications. These specifications impact your trading, so you need to be aware of the specifications for each futures market you plan to trade. Each market has different values, moves, and roll overs, which ultimately affects your success in that market.
Visit cmegroup.com to find the contract specs for all CME Group products.
Activities
Activities questions are optional - they do not count toward your lesson completion.