How to use Futures Contract Specifications tool

What is a Futures Contract?

It's a legal arrangement, in which parties agree to purchase or sell a specific commodity, asset, or security at a predetermined price on a specified future date. These contracts adhere to standardized measures of quality and quantity, streamlining trading on futures exchanges.

Upon entering a futures contract, the buyer commits to acquiring and receiving the underlying asset upon contract expiration, while the seller pledges to furnish and deliver the asset by the contract's end date.

And what are Futures Contract Specifications?

As with every known object, futures contracts have their own parameteres, that we call specifications. These specifications define such things as the underlying asset, contract size, delivery months, tick size and expiration date. By sticking to these standardized terms, futures markets ensure transparency and efficient price discovery.

The underlying asset defines what the futures contracts represent, whether it's commodities like crude oil or agricultural products, financial instruments like stocks or currencies, or even intangible assets like indices. Contract size specifies the quantity of the underlying asset per contract.

Delivery months indicate the months during which contracts are available for trading, providing flexibility for market participants to choose contracts that align with their trading strategies.

The expiration date marks the ending date of the futures contract, signaling when parties must fulfill their obligations.

Tick size refers to the minimum price movement allowed for the futures contract, facilitating precision in price quotation and trade execution.

Point value, also known as tick value or minimum price fluctuation, represents the monetary value of a one-point movement in the price of a futures contract. It indicates how much the contract's price will change for each minimum price increment.

Margin requirements is the amount of money that traders must deposit with their brokers to open and maintain a futures position. Margin requirements serve as a form of collateral to cover potential losses that may occur in the trading account. There are two types of margin in futures trading: initial margin and maintenance margin.
Margin requirements vary depending on factors such as the volatility and liquidity of the underlying asset and the trader's account size. Higher volatility assets generally have higher margin requirements to account for increased risk.

These specifications serve as the foundation of futures trading. By understanding and adhering to these parameters, traders can navigate futures markets with more confidence and better understanding of how trading works.