What are futures contract specs?

When you sign a contract you’re agreeing to terms and conditions. Fine print, legalese, the deets - whatever you call them, they’re important to understand. Futures contracts are no different. Although you’re not literally signing a contract, each time you buy or sell a futures contract, you’re entering into a legally binding contract with a predefined list of terms and conditions. In the futures market, these are called contract specifications, or “specs” for short.

Contract specs include (but aren’t limited to) the contract size and multiplier, the format of the price quote, tick size and value, trading hours, the futures symbol, and the delivery or settlement method. Like we said, all of the deets. While every futures contract shares the same types of contract specs the exact specifications can vary from one contract to another. Understanding these details before you trade a particular contract is critical.

Example

The contract specifications for CME Group West Texas Intermediate (WTI) Light Sweet Crude Oil futures (/CL) state that the contract is for 1,000 barrels of light sweet crude oil, priced in US dollars and cents per barrel, with a tick size of 0.01 per barrel. For every tick that the price moves, the amount of money gained or lost per contract is $10. Trading hours are from Sunday to Friday, 5pm to 4pm Central Time (CT; 23 hours) with a 60-minute break from 4pm to 5pm CT. Contracts are listed with monthly expirations and settlement at expiration involves the physical delivery of crude oil.

Unlike when you trade stocks, where you get to choose how many shares you buy or sell, futures are traded in numbers of contracts. Also, each futures contract specifies the quantity of the product per contract. This is known as its contract size - often referred to as the contract multiplier. The multiplier is defined by the futures exchange in order to meet the needs of market participants. For example, one crude oil futures contract (/CL) represents 1,000 barrels of light sweet crude oil. One gold futures contract (/GC) represents 100 troy ounces of gold. One E-mini S&P 500 (/ES) is 50x the value of the index.

To ensure participants can dial in their desired level of risk, the exchange may list contracts with different multipliers for the same underlying asset. For example, those who wish to take a position in crude oil but can’t risk the exposure of that size contract (1,000 barrels) can instead use the Micro Crude Oil futures (/MCL), which is 1/10th the size of /CL and only represents 100 barrels of crude. Trading 10 micro crude contracts would be equivalent to trading one crude oil contract with regards to contract size.

Price quotation is the format of the price quote for a futures contract. When you trade US-listed stocks, the price is quoted in US dollars and cents, often rounded to two decimal places. With futures, price quotations can be a bit more complex. Sometimes the increment is greater or less than a penny. Sometimes the price is quoted in a currency other than US dollars. Sometimes they’re quoted as fractions. Much of the difference in price quotation format has to do with the underlying asset itself and the exchange where the contract is listed for trading.

Tick size is the minimum price increment, or fluctuation, that the market price of a futures contract can change. Stocks, for example, have a minimum increment of one penny (although sometimes stocks can trade in fractions of pennies). That means a stock’s price might change from $50.10 to $50.11 to $50.12 and so on.

While the tick size for a stock is typically one penny, or $0.01, tick sizes for futures can vary from one contract to another.

Let’s look at a list of different futures contracts and their tick sizes:

• E-Mini S&P 500: 0.25 — 5090.75, 5091.00, 5091.25, 5091.50…
• Crude oil: 0.01 — 72.75, 72.76, 72.77, 72.78…
• Gold: 0.1 — 2348.5, 2348.6, 2348.7, 2348.8…
• Bitcoin: 5 — 65945, 65950, 65955, 65960…
• Euro FX: 0.00005 (euros) — 1.07480, 1.07485, 1.07490, 1.07495…

Part of the learning curve as a new futures trader is getting accustomed to the variety in both the price quotation and tick size of futures contracts.

Tick value represents how much money you will gain or lose per contract with each tick up or down in the futures price. Tick value is a function of the contract multiplier and tick size.

If you know the contract multiplier and the tick size of a contract you’ll be able to calculate the tick value. The formula is simple:

Contract multiplier x tick size = tick value.

For example, the contract multiplier of /CL is 1,000 barrels. Its tick size is one penny per barrel or $0.01. So, 1,000 barrels x $0.01 tick size = $10 tick value. If you’re trading a /CL contract every one-penny tick will result in a $10 gain or loss per contract. If you have multiple contracts, simply multiply the tick value by your position size. For example, if you held seven crude oil contracts, the tick value for your position would be $70 per tick:

1,000 barrels x 0.01 tick size x 7 contracts held = $70 tick value.

While there’s often overlap and many types of futures contracts trade at the same time, each is assigned unique trading hours. Unlike the traditional stock market hours, futures often trade nearly around the clock from Sunday through to Friday. Bear in mind, as with other contract specs, trading hours can vary from one contract to another and some have longer trading hours than others.

Let’s look at the hours for the E-mini S&P 500. Trading begins Sunday evening at 5pm CT and ends on Friday afternoon at 4pm CT. Each day, the contract takes a one-hour break from 4pm CT to 5pm CT. Essentially, other than that one-hour break in the afternoon, this contract trades around the clock from Sunday through to Friday. It’s also worth noting that when the futures contract begins trading at 5pm CT, it signals the start of a new trading day for /ES. It’s important to know the market hours of any product you plan on trading, especially futures contracts.

Each futures contract is either physically settled or cash settled at expiration. Physical settlement is when buyers and sellers of futures are required to make or take delivery of the underlying asset when the contract expires. Cash settlement doesn’t facilitate physical delivery of a futures contract. Rather, when the contract reaches its expiration, cash is credited or debited from your account based on the settlement price.

For example, while gold and crude oil futures* involve physical delivery, stock index futures are cash settled. Keep in mind that, at Robinhood, you can’t make or take delivery of a physically settled contract. Your position must be closed by the last day to trade for all physically settled futures. Remember, we aren’t looking to store 1,000 barrels of crude oil in our back gardens.

*/CL is physically settled, /MCL is cash-settled.

On the Robinhood app, you’ll see an item called “last day to trade”. Last day to trade is the final day you’re able to close a particular futures contract as a Robinhood customer. For cash-settled futures, the last day to trade is the expiration date.

For some physically settled futures, the last day to trade can vary based on the product. Generally, it occurs sometime before the first notice date (FND), which is the initial date on which the seller of a futures contract can notify the buyer of the intent to deliver the underlying asset. This means, you may not be able to open a futures position prior to the ‘Last Day to Trade’ as listed in the app.

FND is crucial for traders holding long positions in some physically delivered futures, as it can signify the beginning of the delivery process. Because Robinhood doesn’t support customers making or taking physical delivery, the contract must be closed or rolled before this date to avoid unexpected delivery obligations. Whether the contract has a FND or not, there's always a last day to trade a futures contract, serving as a critical deadline for managing positions and mitigating unwanted delivery risks.

Pricing bands and circuit breakers are both types of trading restrictions that exchanges will sometimes impose to limit the range of price moves. They’re designed to prevent extreme and destabilising price fluctuations. Price limits represent the maximum price range permitted for a futures contract in each trading session and will vary from product to product, as does what happens when a price limit is hit. Some markets may temporarily halt (circuit breakers) until price limits can be expanded or trading may be stopped for the day based on each exchange’s rulebook.

In addition, contract specs outline the delivery location, commodity grade and quality, and position limits, among others. To read the full contract specs of a contract, visit the website of the exchange where the futures contract is listed. For example, you can find a lot of information about some of the more actively traded futures contracts at the CME Group’s website.

Contract specs are the pertinent information to know before you trade a futures contract. All futures contracts have the same type of contract specs, but details will vary from one contract to another. The futures exchange where the contract trades sets the specs, but your broker can also specify certain details like the last day to trade, and other risk management policies.

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Futures are complex products with a high risk of losing money rapidly due to leverage. They’re not suitable for all investors. Before you invest, you should make sure you understand how futures work, what the risks are of trading futures and whether you can afford to lose more than your original investment. Please review the Futures Risk Disclosure Statement prior to engaging in futures trading.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.