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Focus on Futures: Fundamentals

As we have already said, futures are standardised contracts traded on regulated exchanges. This makes trading easier, as the only variable is the contract price.

All futures contracts will have their own published specification. This will usually include the following details:

Trading unit What the contract is based on. For example: one UK Gilt with a face value of £100,000; or 100 tonnes of wheat; or index points valued at £10 per point.
Price quotation How the contract is quoted: per £100 face value of bonds; per tonne of wheat; or Index points.
Expiry months Cycle of months the contract is listed in. For example: March, June, September, December.
Last trading day Day in the expiry month when the contract stop trading (or formula to determine it).
Delivery day(s) If physical delivery is necessary and, if it is, the schedule for it to occur.
Minimum price movement (tick value) The minimum amount the quotation can move by: For example: 0.01 (bonds); 5 pence (wheat); 0.5 points (index).
Tick size Amount the minimum movement in the quotation is worth when applied to the contract as a whole. For example: £10 (UK Gilts); £5 (wheat); £5 (index).
Trading hours Hours during which the contract is availabe for trading on the exchange.

Before trading futures you should be thoroughly acquainted with the relevant contract specification.


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