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The 6 main parameters of a futures contract

All futures have the same parameters. Once you understand these parameters, you can trade every future. The values of the parameters are dictated by the futures exchanges. They are different for every future, but the concept is the same.

These are the main parameters of a futures contract:

1. The underlying value

A future can be based on a market index (DAX, DOW, CAC...), a commodity (oil, gold...), a forex pair (EUR/USD...), a bond (Bund, T-Note...), a stock, the VIX volatility index, etc. This is the underlying value.

2. A point

If a future goes up from 2.000 to 2.001, it has gone up by 1 point. The exchange defines the value of a point. The Eurex, for example, defines the value of 1 mini-DAX point as € 5. An investor who buys a mini-DAX future at 9.600 makes € 5 profit if it goes up 1 point to 9.601.

3. A tick

A tick is the smallest price change possible. The exchange defines the smallest move possible. The smallest move can be 1 point or smaller. Euronext, for example, defines 0,5 as the smallest price move possible for their CAC 40 future. The price of the CAC 40 future can therefore evolve as follows 4.000,0 > 4.000,5 > 4.001,0 etc.

4. The margin

The investor must have a minimum amount of money on his account when he has an open position. This is the intraday margin. The margin is a fraction of the total value of the future. If the investor wants to keep his position overnight, a higher margin is required. This is called the overnight margin. Futures offer the trader leverage.

5. The exchange fee

The exchange is your counter-party on every trade. They charge a small fee for processing, clearing and settling your order. The exchange fees vary widely. For example, € 0,25 on the mini-DAX future and $ 1,18 on the mini-DOW future. Your broker must debit the exchange fee from your account and pass it on to the exchange.

6. The expiry date

The expiry date is usually one or three months. Trading volume is always highest in the future with the closest expiry date. When a future expires, a new future is available and trading activity moves to the new future.

An example – The mini-DAX future

Exchange The Eurex futures exchange.
Underlying value DAX 30 market index
Value of 1 point € 5
Value of 1 tick € 5 (so 1 tick = 1 point i.e. no decimal prices possible)
The intraday margin € 1.750
The overnight margin € 4.000
The exchange fee € 0,25 per future
Expiry Every 3 months