What is a futures contract?

What are the terms of a futures contract?

What are the mechanics of a futures trade?

Which futures contracts can I trade on STOCK-TRAK?

What are the ticker symbols of the futures I can trade on STOCK-TRAK?

How do I get a quote on a futures contract?

What are the contract sizes of the futures I can trade on STOCK-TRAK?

When do futures contracts expire?

How much does it cost to trade futures contracts?

Once I have the correct ticker symbol for the contract I wish to trade and can get a quote, how do I determine the price of the contract?

How do I calculate Profit/Loss for my futures contract?

Who trades futures contracts in the real world?

What types of orders are there ?

1. What is a futures contract? A futures contract is a firm commitment to deliver or receive a specific quantity and quality of a commodity during a designated month a a price determined by open auction on a futures exchange. Unlike an options contract, a futures contract is an obligation not a right to buy or sell a specific commodity. Futures contracts are traded through Futures Commission Merchants (FCMs) or commodity brokers. These individuals are licensed through the Commodity Futures Trading Commission (CFTC), a regulatory agency of the federal government. Back to top

2. What are the terms of a futures contract? Futures contracts contain the following information:

a) The type of contract is being traded. (Corn, gold, crude oil, etc.)

b) The size of the contract. (A standard crude oil futures contract is 1,000 barrels.)

c) The contract's delivery date, or expiration.

d) The contract's agreed upon price.

e) The specified delivery or settlement procedure.Back to top

3. What are the mechanics of a futures trade ? A buyer or seller of a futures contract, must make an initial "good faith" deposit (margin). Since contracts may be liquidated at any time prior to the settlement date, every futures position is marked-to-the-market and profits/losses are credited/or debited against your account. Any profits over the margin requirement may be withdrawn or used for other futures contracts.Back to top

4. What are the contract sizes and ticker symbols of the futures I can trade on STOCK-TRAK? Individual contract information is listed below:

INDICES(Ticker)	CONTRACT SIZES
Dow Jones Ind. (DJ)	10 times index	Nikkei 225 (NK)	5 times index
Nasdaq 100 (ND)	100 times index	Russell 2000 (RL)	500 times index
S&P 500 Index (SP)	250 times index	U.S. Dollar (DX)	1,000 times index
COMMODITIES.
Corn (C)	5,000 bu (cts. per bu)	Oats (O)	5,000 bu (cts per bu.)
Soybeans (S)	5,000 bu (cts. per bu)	Soybean Meal (SM)	100 tons ($ per ton)
Wheat-CBT(W)	5,000 bu (cts. per bu)	Cattle-Feeder (FC)	50,000 lb (cts per lb)
Cattle-Live (LC)	40,000 lbs (cts. per lb)	Hogs (LH)	40,000 lb (cts per lb)
Pork Bellies (PB)	40,000 lbs (cts. per lb)	Lumber (LB)	80,000ft($per 1000 ft)
Cocoa (CC)	10 met. tons ($ per ton)	Coffee (KC)	37,500 lb (cts per lb)
Sugar-World (SB)	112,000 lbs (cts per lb)	Cotton (CT)	50,000 lb (cts per lb)
Orange Juice (OJ)	15,000 lbs (cts per lb)	Copper (HG)	25,000 lb (cts per lb)
Gold (GC)	100 oz ($ per oz.)	Platinum (PL)	50 oz ($ per oz.)
Silver (SI)	5,000 oz (cts per oz.)	Crude Oil (CL)	1,000 bbls ($ per bbl)
Heating Oil #2 (HO)	42,000 gal ($ per gal.)	Gas. NY Unl (HU)	42,000 gal ($ per gal.)
Natural Gas (NG)	10,000 btu's ($ per btu)	Soybean Oil (BO)	60,000 lbs (cts. per lb)
CURRENCIES
Australian Dollar (AD)	100,000 AD ($ per AD)	Japanese Yen (JY)	12.5 Mil. JY($ per JY)
British Pound (BP)	62,500 BP ($ per BP)	Mexican Peso (ZG)	500K ZG ($ per ZG)
Canadian Dollar (CD)	100,000 CD($ per CD)	Swiss Franc (SF)	125K SF ($ per SF)
Deutsch Mark (DM)	125,000DM($ per DM)	Eurodollar (EC)	125,000 ($ per Euro)
FINANCIALS
Treasury Bonds (US)	100,000 pts(32's of par)	Euro $ Int. Rate(ED)	1 Mill. pts (pts of par)
Treasury Bills (TB)	1,000,000pts(pts of par)	Libor (EM)	3 Mill. pts (pts of par)
5 Yr. T. Notes (FV)	100,000 pts(32's of par)	Muni-Bond (MB)	1,000 (times MB)

Back to top

5. How do I get a quote on a futures contract? Two items are needed in order to get a quote on a futures contract, the contract's symbol , and the expiration month quote. Go to the above table to get the contract symbol you wish to trade. Example, the symbol for crude oil is CL. The second item needed is the expiration month code. the table below lists the expiration month codes.

MONTH	SYMBOL	MONTH	SYMBOL
January	F1	July	N1
February	G1	August	Q1
March	H1	September	U1
April	J1	October	V0
May	K1	November	X0
June	M1	December	Z0

6. When do futures contracts expire? There is no specific date when all futures expire. Each contract has its own expiration date. As a general rule, similarly categorized contracts will expire on or about the same date.Back to top

7. How much does it cost to trade futures? Investing in futures only requires a cash margin requirement. A futures margin deposit is not the same as margin on stock purchases. Both margins secure your purchases or sales, but they differ in many ways. Stock market margins are a form of down payment for the purchase of an asset. A futures margin is more of a performance pledge, ensuring that obligations will be honored. Since a futures deposit isn't an extension of credit (like a stock margin is), you may earn interest rather than pay it. Moreover, while a stock margin is typically 50% of the value of the purchases assets, a futures margin generally ranges from 5-10% of the contract value. The amount of the margin requirement is determined by the volatility of the underlying security. STOCK-TRAK has simplified the margin requirement to alleviate the confusion that lies in people trading futures for the first time. STOCK-TRAK has set the margin requirement for all commodities other than "unleaded gas (HU)", "heating oil (HO)", "crude oil (CL)", and "natural gas (NG)" to $2,000 per contract. Unleaded gas (HU), Heating oil (HO), Crude oil (CL), and Natural gas (NG) are set at $5,000 per contract. Nasdaq, S&P500 needs $50,000 per contract. Lastly the following indices will be set at $25,000 per contract: Dow Jones (DJ) Nikkei (NK), and Russell (RL).  Back to top

8. Once I have the correct ticker symbol for the contract, how do I determine the price of the contract?

Multiply the (contract quote) x (contract size).This will give you the contract price.

Click here if you need conversion rates.
Back to top
9. How do I calculate Profit/Loss for my futures contract?

Multiply the (contract quote) x (contract size) at the time of purchase. This will give you the contract price at the time you bought the contract.

Then multiply the (contract quote) x (contract size) at time of sale. This will give you the contract price at the time you sold the contract.

The difference in the two above calculations is the profit/loss per contract.

If you traded multiple contracts, you need to multiply the number of contracts into the equations above. This will give you total profit/loss for a trade involving multiple contracts. Back to top

10. Who trades futures contracts in the real world?

Futures contracts are used for two types of investing, hedging and speculation. Speculative investors hope to profit from volatility in the market, while hedge investors trade futures to protect current holdings against volatility.

Hedger : is someone who owns or plans to purchase an inventory of a commodity and wishes to reduce the risk associated with this ownership. Hedgers make their purchases or sales solely for the purpose of establishing a known price level in advance for something they later intend to buy or sell in the cash market. They do this by taking an equal and opposite position in the futures market than they have in the cash market. As the price of the commodity fluctuates, the hedger is protected because gains in one market are offset by losses in the other market. Hedgers willingly give up the opportunity to benefit from favorable price movements in order to achieve protection against unfavorable price changes.

Speculator : is someone who is willing to accept the risk the hedger wishes to avoid. Speculators take positions based on their expectations of futures price movement often with no intention of making or taking delivery of the commodity. They buy when they anticipate rising prices and sell why they anticipate falling prices. The speculator provides an important function in the futures market because with out his role, the market would not be liquid enough and the price protection sough by the risk adverse hedger would by extremely costly.

Example: Lets say that there are two neighbors, Homer and Ned. They live in an area where oil is produced. Homer lives on a piece of land that doesn't yield any oil, while Ned's land yields thousands of barrels.

Homer believes that the price of Crude Oil is going to go down. Homer would Sell a crude oil contract, thereby profiting if the price of crude does indeed drop. Since Homer has no oil holdings, this is considered a speculative investment.

Ned also believes that the price of Crude Oil is going to go down. Ned would also Sell a crude oil contract, thereby profiting if the price of crude does indeed drop. This profit offsets the loss of the value of Ned's oil holdings. This is considered a hedge investment. The size of Ned's oil holdings determines just how many contracts that Ned needs to sell. Back to top

11. What types of orders are there ? The types of orders most commonly used are briefly described below. Keep in mind that different exchanges accept different orders. Please check with the exchange as to what is acceptable to them.

a) Market Order (MKT) : is the most frequently used order. In most cases it assures you of getting a position and eliminates "chasing" a market to get in or out of a position. The market order is executed at the best possible price obtainable at the time the order reaches the trading pit.

b) Limit Orders : are an order to buy or sell at a designated price. Limit orders to BUY are placed below the market while limit orders to SELL are placed above the market. Since the market may never get high enough or low enough to trigger a limit order, a customer may miss the market if he uses a limit order. Even though the market may touch your limit price several times, it still does not guarantee the customer a fill at that price.

c) Market if Touched (MIT) : is the opposite of a "stop" order. BUY MITs are placed below the market and SELL MITs are placed above the market. An MIT order is usually used to enter the market or initiate a trade. An MIT order is similar to a limit order in the sense that a specific price is placed on the order. However, an MIT order becomes a market order once the limit price is touched or passed. An MIT order will not be executed if the market fails to touch the MIT specified price.

d) Stop Order : can be used for 3 purposes...

- to minimize a loss on a long or short position.

- to protect a profit on an existing long or short position.

- to initiate a new long or short position.

A BUY stop order is placed above the market and a SELL stop order is placed below the market. Once the stop price is touched, the order is treated like a market order and will be filled at the best possible price.

e) Stop Limit Order : lists 2 prices and is an attempt to gain more control over the price at which your stop is filled. The first part of the order is written like the above stop order. The second part of the order specifies a limit price. If the second price is not listed, the order can not be filled by the broker immediately at the stop price and it becomes a straight limit order at the stop price.

f) Market on Opening and Market on Closing (MOC) : this is an order that you wish to be executed during the opening or closing range of trading at the best price obtainable. Not all exchanges recognize this type of order. One exchange that does, is the Chicago Board of trade. Please keep in mind that your broker may refuse an MOC order up to the last fifteen minutes before the close depending on market conditions.

g) Fill or Kill : is used by customers wishing an immediate fill but a specified price. The floor broker will bid or offer the order three times and return to you with either a fill or an unable, but will not continue to do so through out the session.

h) Spread : the customer wishes to take a simultaneous long and short position in an attempt to profit via the price differential or "spread" between two prices. A spread can be established between different months of the same commodity, between related commodities or between the same or related commodities trades on two different exchanges. A spread order can be entered at the market or you can designate that you wish to be filled when the price difference between the commodities reaches a certain point or premium.

For Example : Buy 1 June live cattle. Sell 1 August live cattle PLUS 100 to the August sell side. This means that you want to initiate or liquidate the spread when August cattle is 100 points higher than June cattle.

i) Open Orders : are also known as Good Till Cancelled Orders and will remain valid until cancelled.

j) Dicretion Orders (DRT) : on most orders it is possible to give the floor broker some discretion to fill the order as he sees fit. This leeway can be very broad or very narrow. Remember it is in the broker's best interest to fill the order at the best obtainable price.