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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

  • More About Futures

 

 

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:

 

 

  • Underlying instrument

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

  • Size

The amount of the underlying item covered by the contract.

  • Delivery or contract cycle

The specified months for which contracts can be traded.

  • Maturity date

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

  • Grade/quality specification and delivery locations

A detailed description of the commodity or security and where, when, and how it can be delivered.

  • 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 Distinctions

 

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

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                    Options                                        Futures

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Buyer          Has the right to buy or sell             Has the obligation to take delivery of the underlying

                   the underlying security.                  commodity or financial instrument on expiration at the                                                                                               settlement security price.

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Seller           Has the obligation to buy               Has the obligation to make delivery of the underlying commodity

                    or sell the underlying                     or financial instrument on expiration at the settlement price.

                    security.

 

​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.

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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

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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 2005 Sept S&P e-mini contract and the 2005 December Google contract.

 

ESU5 = September 2005 E-mini S&P 500

 

GOOGZ5 = December 2005 Google Future

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​For more information regarding futures and futures trading, please visit the following sites:

 

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Any stock or options symbol displayed are for illustrative purposes only and are not intended to portray a recommendation to buy or sell a particular security.

 

Futures involve substantial risk and are not appropriate for all investors. Please read Risk Disclosure Statement for Futures and Options prior to applying for account.

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