Deep Dive · Futures · Lesson 3
Contract
Specifications
Big Idea
Every futures contract comes with a standardised "spec sheet" set by the exchange. It fixes exactly what is being traded, in what quantity, and how the price moves — so that every contract of the same type is identical and interchangeable.
The exchange standardises everything but the price. That is what lets futures trade freely between strangers.
Why Standardisation Matters
Because the terms are fixed, one crude oil contract is exactly like every other crude oil contract for the same month. You never have to negotiate the size, the quality, or the delivery date — only the price. That interchangeability is what makes futures liquid: buyers and sellers can trade in seconds without reading fine print.
A privately negotiated agreement with custom terms is a forward, not a future. Standardisation is the dividing line between the two.
The Spec Sheet
Here are the specifications that matter most to a beginner, shown for a crude oil contract as an example.
| Specification | What It Means | Crude Oil Example |
|---|---|---|
| Underlying | What is being traded | WTI crude oil |
| Contract size | The fixed quantity per contract | 1,000 barrels |
| Price quotation | The units the price is quoted in | US dollars per barrel |
| Tick size | The smallest price move allowed | $0.01 per barrel |
| Tick value | What one tick is worth per contract | $10 |
| Contract months | Which delivery months are listed | Every month |
| Settlement | How the contract is closed out | Physical delivery |
The three a beginner must know cold: contract size, tick value, and expiration.
Contract Size (the Multiplier)
The contract size is the fixed quantity of the underlying that one contract controls. It is why "one contract" can represent a very large position. The total value it controls — the notional value — is simply the size times the price.
- One crude oil contract: 1,000 barrels
- Price: $75 per barrel
- Notional value: 1,000 × $75 = $75,000
Sizes vary enormously from one market to another, so the same word — "one contract" — means very different amounts of money:
| Contract | Contract Size | Tick Size | Tick Value |
|---|---|---|---|
| Crude oil | 1,000 barrels | $0.01 | $10.00 |
| Gold | 100 troy ounces | $0.10 | $10.00 |
| E-mini S&P 500 | $50 × index level | 0.25 points | $12.50 |
| Corn | 5,000 bushels | $0.0025 | $12.50 |
Tick Size and Tick Value
A tick is the smallest amount the price is allowed to move. The tick value is what that move is worth on one contract — and it follows directly from the contract size:
Tick value = tick size × contract size
- Crude oil: $0.01 × 1,000 = $10 per tick
So if crude oil moves from $75.00 to $75.10, that is 10 ticks — worth $100 on a single contract. Counting in ticks is how futures traders measure profit and loss.
| Move in Oil | Ticks | P&L (1 Contract) |
|---|---|---|
| $0.01 | 1 | $10 |
| $0.10 | 10 | $100 |
| $1.00 | 100 | $1,000 |
Tick size is about price; tick value is about money. Do not confuse the two.
Contract Months and Expiration
Futures do not trade forever. Each one is tied to a specific delivery month, and the exchange lists a set calendar of them. Some markets list every month; stock-index futures usually run on a quarterly cycle — March, June, September, and December.
The nearest listed month is called the front month, and it is normally the most active. As a contract nears its expiration, traders who want to keep the position roll it — closing the expiring contract and opening the next month. (Rolling and settlement get their own lesson later.)
- Front month — the nearest expiration, usually the most liquid
- Quarterly cycle — Mar / Jun / Sep / Dec, common for index futures
- Roll — move a position from the expiring month to the next
Reading a Contract: A Worked Example
Take the E-mini S&P 500. Its multiplier is $50 per index point, and its tick is 0.25 points. Suppose the index is trading at 5,000.
- Notional value: $50 × 5,000 = $250,000
- Tick value: $50 × 0.25 = $12.50
- A 4-point move (5,000 → 5,004): 16 ticks × $12.50 = $200
One E-mini contract controls a quarter-million dollars of index exposure — a reminder that the contract size, not the price you see quoted, tells you how much is really at stake.
Interactive Checks
Check 1 of 3
One crude oil contract is 1,000 barrels, and oil is trading at $75.
What is the notional value of one contract?
Check 2 of 3
A crude oil tick is $0.01 and the contract is 1,000 barrels. Oil moves up $0.10.
How much did one long contract make?
Check 3 of 3
The exchange fixes the size, quality, and delivery dates of every contract.
Why does this standardisation matter?
Common Beginner Mistakes
- ❌ Ignoring contract size. "One contract" of crude controls $75,000 of oil, not $75. Always translate to notional value.
- ❌ Confusing tick size with tick value. Tick size is the price increment; tick value is the dollars it is worth on one contract.
- ❌ Assuming every contract is the same size. Sizes differ hugely across markets — check the spec sheet before you trade.
- ❌ Forgetting contracts expire. Each is tied to a delivery month; to hold a position past expiry you must roll it.
Quick Memory Tool
- The exchange standardises everything but the price
- Contract size = the fixed quantity per contract
- Notional = contract size × price
- Tick value = tick size × contract size = dollars per minimum move
- Every contract is tied to a delivery month and expires
Put it into practice
Look up tick sizes and see what any price move is worth with the Futures Tick Value Calculator
Next Lesson
Margin and Leverage — you do not pay the full notional value to trade a futures contract. You post a margin deposit, and that is where leverage — and its danger — comes from.