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3. Commodity Futures Trading Contract Specs

The commodity futures trading contract specs (specifications) for each commodity is different. There are even different delivery months of the same commodity. Understanding the commodity futures contract specs is at the heart of knowing the rules that govern trading a commodity futures contract, as well as the price movement value of each commodity. This chapter discusses the commodity futures trading contract specs that are printed in Commodity Price Charts. There are two legends which contain specifications about each commodity. The first legend is printed on the front month price chart (i.e., the commodity which has the closest delivery date). The information in this legend is described line by line, from top to bottom.

Symbol for the commodity:

This line contains the Exchange symbols which identifies both the commodity and the contract month. For example, FCF means the "Feeder Cattle" (FC) contract for the "January" (F) month. The standard symbol used for each month by all Exchanges is:

 F – January    K – May      U – September
 G – February   M – June     V – October
 H – March      N – July     X – November
 J – April      Q – August   Z – December

Month/Year/Commodity/Exchange:

This line contains the Month and the Year in which performance of this contract will occur. The specific commodity is identified, as well as the Exchange on which this commodity is traded designated by its initials. For example, JAN.00 FEEDER CATTLE (CME) means this contract is traded on the Chicago Mercantile Exchange (CME). The codes for major U.S. commodity Exchanges are:

Exchange Code:    Exchange:
CBOT              Chicago Board of Trade
CME               Chicago Mercantile Exchange
COMEX             Commodities Exchange Center
CSC               Coffee, Sugar, Cocoa Exchange
FINEX             Financial Instrument Exchange
IMM               International Money Market
NYC               New York Cotton Exchange
NYFE              New York Futures Exchange
NYMEX             New York Mercantile Exchange

Each Horizontal Line:

This next line identifies the extent of movement for price for each horizontal line on the price chart. For Feeder Cattle, each horizontal line normally represents 50 points. The value of price movement for each horizontal line may be different from one issue of Commodity Price Charts to another. This change will represent increased volatility for a market, but the point value will stay the same. For example, the price chart value for each horizontal line in Feeder Cattle may change to 100 points, or 25 points.

Point Value/Minimum Move:

This line identifies the point value (also called "tick") for price movement (in Feeder Cattle 1 point = $5.00), as well as the minimum amount price must move (2.5 points).

The vertical figures on the right side of the price chart identify the price per increment of the commodity. To determine the dollar value of a price change, you multiply the change per increment by the size of the contract. Feeder Cattle is quoted in cents per pound. If the price per pound goes up one cent, the contract of 50,000 pounds will increase in value by 100 points. Each point is worth $5.00 in Feeder Cattle, so a price move of one cent (100 points) represents a profit (or loss) value of $500.00.

The horizontal values on the bottom of the price chart represents time. These values are organized by sequential month and dates within the month. Each vertical line on the chart represents the Monday of that week in the month. Between each vertical line are staggered dots which represent the other trading days of the week. Additional space is provided near the right edge of the chart to manually plot price changes.

FND/LTD:

FND (First Notice Day) is the first day that a notice of intention to accept delivery of the actual commodity will be made. This date is established by the Exchange. To avoid taking delivery you must offset any long positions held by you before this date. In the event you miss the FND, your broker can make arrangements to sell your contract. This is an irresponsible position to be in, and you will be charged a fee for this transaction. If you are long, get out 1-2 weeks before this date.

LTD (Last Trading Day) is when all trading ceases for a particular contract. All short contracts not closed by this date will be settled by actual delivery. If you are short, get out 1-2 weeks before this date.

OPTIONS EXPIRE:

This line identifies when the Option for this contract expires.

High/Low:

These lines identify the contract's highest price, the date the high price occurred and its value. Also identified is the contract's lowest price, the date the low price occurred and its value.

An additional graphic box also appears on the front month (the nearest contract month) which displays dates when the High and Low price occurred for the most current five days which appear on the chart. The Open and Close price for each date is included.

Another Legend

Another legend (which is also in a graphic box) will appear on the price chart for the contract with the next delivery date. It contains the following information.

Exchange:

The top line in the legend box contains the code for the Exchange. For Feeder Cattle, the Exchange code is CME.

Contract Size:

This second line in the legend identifies the quantity which this contract represents. For Feeder Cattle, the contract size is 50,000 pounds.

Trading Hours:

This identifies the hours when the Exchange allows trading to occur. Unless otherwise specified, the trading hours for the Exchange is in Eastern Standard Time (EST).

Minimum Move:

This is the minimum increment that the Exchange will allow price to change. Because commodities are produced and consumed in huge quantities, a small price change can involve a great deal of money for the buyer and seller. Many commodity contracts move in fractions of cents, and in some cases move in 100ths of a cent. In each case the commodity will be quoted in dollars ($1), cents ($0.01), and points ($0.0001). There are 100 cents to a dollar and 100 points to a cent. For example, the minimum move in soybeans is ¼ cent. Soybeans move from 572-½ to 572-¾ or ¼ cent per bushel. ¼ cent per bushel times 5,000 bushels = $12.50.

Coffee is quoted in cents per pound with a minimum move of 5 points or 5/100th cent. If Coffee moves from 165.00 to 165.05, it has moved 5/100th cent. 5/100th cent per pound times 37,500 pounds = .0005 x 37,500 = $18.75.

Limit Move:

The bottom line in this legend is the maximum amount that the Exchange will allow price to move in any trading day. Some contracts may be subject to a limit, while other contracts allow for unlimited price movement. This is a specification you must know and be aware of for any commodity you trade.

Note: Getting familiar with how to use this information will take time and practice. You will get this practice through Paper Trading (described later).

The next chapter describes Commodity Futures Trading Chart Patterns.