One of the major differences between stock trading and futures trading is the way commodity futures prices are quoted.
In trading stocks, the price quoted is exactly what one share of that stock would cost to buy or sell in dollars and cents. In futures trading, this is not the case, which can lead to some confusion for investors new to futures trading.
When looking at futures prices, you are actually looking at the price of actual commodity futures product. This can be very simple for a futures markets like Gold. If you were looking at a price quote of 1,327.4 for a Gold futures contract, this means that the price per ounce for a Gold futures contract is $1,327.40 (as you can see in the price quote above, the final ‘zero’ is dropped from the price quote as Gold futures prices trade in 10 cent increments).
Other futures markets pricing, such as the E-mini S&P 500, are quite different. As with all futures contracts, the price quoted needs to be multiplied by that futures contract’s point value to determine it’s ‘dollar and cents’ value. Although this may sound confusing, it’s actually quite simple once you’ve done it a few times.
Here’s an example: let’s assume an E-mini S&P 500 futures contract is currently trading at 2154.75, up 11.50. If you were fortunate enough to have bought one futures contract at yesterday’s closing price of 2143.25, you would currently be up $575.00 on this trade. That’s because a full point, 1.00, is worth $50.00 in the E-mini S&P 500 futures market. In this example, multiply $50.00 by the 11.50 points the futures price moved up from yesterday’s close to get the dollar value of this price change.
Another point to remember is that each futures contract has a minimum price movement. This is known as a ‘Tick’. The E-mini S&P 500 futures contract has a minimum price movement of 0.25 points, which equates to $12.50 ($50 ÷ 4). If you were to go short one E-mini S&P 500 futures contract at 2154.75 and the market moved down to 2154.25, you would be up $25.00 or 0.50 points on your futures position. Conversely, if you were to go short one futures contract at a price of 2154.75 and E-mini S&P 500 futures market moved up to 2156.25, you would have a loss of 1.50 points or $75.00.
Every futures contract has it’s own point and ‘tick’ value.
Many of the futures market sectors will often share point values and tick sizes such as in the futures Grain sector. Three of the major Grain futures contracts are Corn, Soybeans and Wheat. All three have a ¼ cent minimum tick size, which equates to $12.50; a full 1 cent move in any of these three futures grain markets is equal to $50.00. All three of these futures grain markets, Corn, Soybeans and Wheat, all have a contract size that is equal to 5,000 bushels of the corresponding commodity. If the price of Soybean futures goes up 11 cents in one day, this price move would be equal to $550.00 ($0.11 x 5,000 bushels = $550.00).
You also would use this same formula to calculate the full value of one futures contract. For example, let’s say a Corn futures contract is currently trading at 331 ¼. This futures quote, 331 ¼ cents ($3.31 ¼) means the current value of this Corn futures contract is $16,562.50 or $3.31 ¼ x 5,000 bushels.
Again, this information may seem a bit confusing but once you actually start trading futures, it should become quite easy to understand.
For those investors who would like to get started trading futures but feel they need some guidance and assistance, we offer our Traders Advantage account plan. Our Traders Advantage account plan gives you the opportunity to work directly with myself in learning about the mechanics of the futures markets and how to trade them.
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