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characterstics of futures contract



In a futures contract there are two parties:


1.     The long position, or buyer, agrees to purchase the underlying at a later date or at the expiration date at a price that is agreed to at the beginning of the transaction. Buyers benefit from price increases.

  1. The short position, or seller, agrees to sell the underlying at a later date or at the expiration date at a price that is agreed to at the beginning of the transaction. Sellers benefit from price decreases.

# specification of futures of market:- Let’s review some of the specifications you might find in a Commodity Futures contract

Contract Size:Here you find the size of the actual contract you are trading.  In the case of Soybeans we are looking at 5,000 bushels per contract.  This is the minimum amount you can trade for this particular contract.  Unlike Equities you cannot trade partial contract sizes. 

Pricing Unit:When reading a price quote for this Commodity you need to know what the value represents.  Soybeans for example are priced in cents per bushel.

Daily Price Limits:Some Commodity Futures contracts, not all, have daily limits imposed by the exchanges.  These are prices set the previous day for the maximum amount the market may rise or fall the next trading day.  It is important to know if the market you are trading has these limits. 

Settlement Procedure:This area tells you if the Commodity Futures contract calls for physical delivery or cash settlement.  Physical delivery means you would have to deliver or take delivery of the Contract if held until expiration.

Daily Price Limits:Some Commodity Futures contracts, not all, have daily limits imposed by the exchanges.  These are prices set the previous day for the maximum amount the market may rise or fall the next trading day.  It is important to know if the market you are trading has these limits. 

Position limit-pl are the maximum number of contract that a speculater may hold.

Price quotes-the exchange specified the quotation unit.the quation unit is simply the unit in which the price is specified.

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