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Speculative/High Risk Products: Futures
Futures Basics  
Want to learn more about Futures? Here are some links to get you started:
  What are Futures?
  Futures Symbols
  Value of a Futures Contract
  Futures Exchanges

What are Futures?  

A futures contract is the obligation to receive or deliver a commodity or financial instrument at a specific date in the future at an agreed upon price today.

These contracts have the following standard specifications:

1. Underlying instrument
The commodity, financial instrument, or index upon which the item is based.

2. Size
The amount of the underlying item covered by the contract.

3. Delivery or contract cycle
The specified months for which contracts can be traded.

4. Maturity date
The date by which all particular futures trading month ceases to exist and all obligations must be fulfilled.

5. Grade/quality specification and delivery locations
A detailed description of the commodity or security and where, when, and how it can be delivered.

6. Settlement procedures
Rules for physical delivery of the underlying item, including how payments are made and received, or the specific cash series and procedures used for cash settlement of the contract.

These contracts are traded on an organized and regulated futures exchange enabling buyers and sellers to transact business. In most cases, traders fulfill the obligation of the contract by taking the offsetting position. For example, if a trader is long a futures contract, he must sell the contract prior to the expiration date to avoid taking delivery of the physical commodity.

Futures and Options Disctinctions  
  While both futures and options are derivative products, they have their differences in
terms of obligations.


Has the right to buy or sell the
underlying security
Has the obligation to take delivery
of the underlying commodity or financial instrument on expiration at the settlement price.


Has the obligation to buy or sell
the underlying security
Has the obligation to make
delivery of the underlying commodity or financial instrument on expiration at the settlement price.
  Traders that hold futures position always have the obligation to buy or sell the underlying commodity. In order to meet this obligation, traders need to offset the futures position.

Futures Symbols

Both Futures and Security Futures use the same protocol for symbol identification. The first letters of the symbol are in reference to the underlying contract, such as ES represents the E-mini S&P and GOOG for Google. For Single Stock Futures, the root is always the ticker symbol of the stock.

The root symbol is then followed by the letter of the month, and the number for the year. The two examples listed below show the symbols for the 2007 Sept S&P E-mini contract and the 2007 December Google contract.

2007 December Google = GOOGZ07
2007 September E-mini S&P = ESU07

Futures Calendar Month Codes
F = January
K = May U = September
G = February M = June V = October
H = March N = July X = November
J = April Q = August Z = December
Value of a Futures Contract
  The value of a futures contract, more commonly referred to as its notional value, is the value of the derivative's underlying assets at the spot (cash) price. This value represents the equivalent dollar amount invested when trading a single futures contract.

In order to determine notional value, you need to know the contract specification. The specification is the amount of the underlying asset or value of index determined by the exchange. Once you have the specification, calculating the notional value of any futures contract is simple mathematics. The table below lists sample contract values of the most actively traded futures contracts.
Current Quote
National Value

E-mini S&P

$50 x S&P
S&P 500
$250 x S&P
Dow Jones
$10 x DJIA
10-Year Note
100 oz
British Pound
62,500 BP
Using the E-mini S&P as an example, the notional value of the contract is found by multiplying the current quote of the index by $50.00:
$50.00 x 1518 = $75,900.00

Multiplier x Current Quote of S&P 500 = Notional Value
In the example above, the S&P 500 index has a current quote of 1518. The contract specification thus yields a notional value of $75,900.50 for one E-mini S&P contract.

Determining the notional value of treasury futures requires an extra step. Treasuries are quoted in a percentage of the par value of the contract. The table above quotes a 10-Year Note at 106-205. The specification actually translates to 106.205 percent of par value ($100,000), or a notional value of $106,205.00.
106-205 = 106.205 % = 1.06205

Current Quote of 10-Year Note = Decimal Percentage = Equivalent Quote

$100,000 x 1.06205 = $106,205.00
Multiplier Equivalent Quote of 10-Year Note Notional Value

View a detailed list of futures products and specifications.
Futures Exchanges

Historically, futures contracts have been typically traded on an exchange where traders and brokers compete on equal footing in an auction-style, open-outcry market. Communicating by voice and hand signals, brokers and traders match orders based on the best prevailing market price. By centrally locating trading, exchanges provide an opportunity to minimize risk by allowing hedgers to protect themselves against adverse price swings and speculators to profit from such market moves.

In addition to providing a focal point for trading, futures exchanges also provide speedy clearing of trades, accurate recording of prices and trading limits to promote fair and orderly markets. Firms that are members of the exchange guarantee all the contracts traded by their customers by posting funds against outstanding positions. The exchange's function as a clearinghouse promotes overall confidence in the futures markets.

With the advent of technology, electronic trading has gained a foothold in the industry. Trading by means of electronic order matching, electronic trading offers more market transparency and faster reporting. While most European futures markets are fully electronic, futures trading in the US is still dominated by the open outcry method during normal business hours; however, technology is quickly overhauling this process.

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