Futures are different from stocks, there are no shares. Futures are a contract that you purchase, and like all contracts it has a specification and expiration. Every futures contract has a size that is set by the exchange it is traded on. For example, the Gold contract on the COMEX Exchange is 100 troy ounces, and Crude OIl is 1,000 barrels per contract on the NYMEX. So, when you buy one contract of Gold futures, you are controlling 100 ounces of Gold. And when you buy one contract of Crude you are controlling 1,000 barrels of oil.
If you hold your contract until expiration, you will be obligated to take physical delivery of the commodity at the price you settled when you purchased the contract. The expiration date, or last trading day, is on the close of business on the third to last business day of the contract month. Some futures only expire on certain months. Gold futures for example, only expire on February, April, June, August, October and December.
The ticker symbol of a contract is different from stocks. It is composed of three parts; the underlying futures symbol, the contract month and the contract year. For example, Gold futures have the symbol “GC.” The complete symbol for July 2011 Gold Futures would be GCQ11.
- “GC” is the symbol for Gold futures.
- “Q” stands for the August contract (F=Jan, G=Feb, H=Mar, J=Apr, K=May, M=June, N=July, Q=Aug, U=Sep, V=Oct, X=Nov, Z=Dec)
- And “11” is the year 2011.
This is the standard formula for futures ticker symbols.
When you trade a futures contract, the smallest increment that the contract can move is called the “Tick.” Each commodity has a different standard for the value of a tick, which is based on the total size of the contract and the number of ticks in a one dollar move in price. For Gold a Tick equates to .10 cents, so the value of a tick is the size of the contracts, or 100 ounces, multiplied by the value of a tick, or $.10 cents, which equals:
100 x $.10 = $10.
So a $1 move in the price of Gold would equate to a $100 move in the price of a Gold futures contract.
If you are going to trade a futures contract, you should know everything about that commodity and the contract specification. Not knowing the proper contract to trade, or holding a contract through expiration could cause your account a great deal of harm. In addition you should know the fundamentals of the underlying commodity, such as it’s relationship with other commodities, the economy, or dollar. You should also be aware of when economic reports are going to be released that may affect the futures price.