The Futures Contract

A futures contract has two parties: a buyer and a seller. The seller agrees to deliver a standardized quantity of something for a guaranteed price on a stated delivery date. The buyer is obligated to take delivery and make payment on the delivery date. For example, a coffee futures contract is for 37,500 pounds of the commodity. Live cattle contracts are for 40,000 pounds. In practice, futures contracts are normally settled for a cash amount equal to the difference between the price on the date the contract was made and the price on the date it is settled. No actual delivery takes place.

Futures Price Quotes

Calculating Futures Contracts

To calculate the value of a futures contract, multiply the price by the size or number of units in one contract. Divide by 100 to convert to dollars and cents. Suppose the price of May 2014 coffee futures is 190.5 cents. One coffee futures contract is equal to 37,500 pounds, so multiply 37,500 times 190.5 and divide by 100. The value of the coffee futures contract comes to $71,437.50.

Figuring Profit or Loss

References

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