1.3.2. Contract Terms and Conditions
Every futures contract has standardized terms and conditions that are particular to that commodity. Only the number of contracts and their price are left to the discretion of the trader. Standardized terms include the required size and grade of the product being traded, the price units it must be traded in, the dates and times in which trading is allowed, and the locations in which the product must be delivered.
Contract grade. Most commodities come in varying qualities, often based on color, size, or weight. Cotton grown in the Mississippi delta in any given year will have different growing conditions than cotton grown in North Texas, and within regions, different soils and growing practices will also affect quality. The exchanges have developed standardized grades which the product must meet for marketing purposes. Cotton No. 2 is a white cotton “strict low middling” in color, having a specified weight and strength. It will sell at a different price than “light spotted middling” cotton with a different weight and strength.
Unit size. Each contract must be bought and sold in specific unit sizes. Cotton is sold in units of 50,000 pounds; silver in units of 5,000 troy ounces. Corn is sold in 5,000 bushel units, and Treasury bonds in units of $100,000.
Contract months. Some products, like crude oil and natural gas, may be traded in any month of the year. Others, such as most agricultural products, are only traded during their harvest months. For example, you cannot buy a contract for corn with an April delivery date.
Quotation unit. A quotation unit is the standard unit in which the price is specified. Oats are quoted in cents per bushel. Live cattle are quoted in dollars and cents per pound, and lumber in cents per board foot.
Some price quotes, notably grains, will contain an apostrophe in them. For example, oats might be quoted at 183’2. The number following the apostrophe denotes eighths o