Futures trading is an important part of investing. It allows those who take part to hedge their bets against fluctuations in price and also helps in price forecasting. By bringing key players like consumers and manufacturers together, futures trading aids in creating a global marketplace. Futures trading has ballooned in the volume traded recently, reaching about 29 billion contracts a year in 2023. That's a big jump from the 12.22 billion contracts traded in 2013. As of early 2024, the most traded futures were in equities (65% of futures trading by volume), currencies (9%), interest rates (9%), energy (5%), agriculture (4%), and metals (4%).
But what are futures, and how do you read price quotes for them? Read on to check out our quick guide on understanding futures quotes.
Key Takeaways
- Futures contracts are traded between two parties, and the buyer agrees to buy a specific amount of product from the seller at an agreed-upon price at a future date.
- Futures quotes include the open price, high and low, the closing price, trading volume, and ticker.
- Futures contracts can have differences depending on the underlying assets.
- Contract codes identify the product, month, and year of the contract.
What Is a Future?
The futures markethas a long history that dates backto rice traders in preindustrial Japan. The Dojima Rice Exchange was established in that country in 1697 so people could trade rice futures. Commodity futures moved to England, where the London Metal Exchange was formally created in 1877. One of the oldest commodity exchanges in North America, the Chicago Board of Trade (CBOT), was founded in 1848.
Futures are financial contracts between two parties, a buyer and a seller. The buyer agrees to purchase a specific amount of product from the seller, such as currencies, commodities, or other financial assets, at a specified price at a predetermined date in the future. All the information is known at the onset of the contract. The buyer must later purchase the product at the agreed-upon price, whatever the market price at expiration.
Most traders never take physical delivery of the asset, whether the underlying asset is barrels of oil, Japanese yen, or bushels of wheat. Rather, traders make and lose money based on theprice fluctuations of the contract, with most traders opting to close their position before the contract expires.
Understanding futures price quotes is required if you're going to trade futures.
Futures Quote Information
The first step in being able to trade futures is to understand a futures price quote.When looking up a futures price quote, most sources will provide the following basics:
- Open: The price of the first transaction of the day.
- High: The high price for the contract during the trading session, basically the day you're looking.
- Low: The low price for the contract during the trading session.
- Settle: The closing price at the end of the trading session.
- Change: The change between the closing price of the current trading session and the closing price of the previous trading session. This is usually quoted as a value in dollars and as a percentage.
- 52-weekhigh/low: The highest and lowest prices for the contract in the past year.
- Open interest:The number of open or outstanding contracts.
- Volume: The number of contracts that have changed hands during the session.
- Exchange: The physical exchange through which the contract trades: the CBOT, etc. Many contracts trade on more than one exchange.
- Contract/ticker: Each futures contract has a specific name/code that explains what it is (ES for E-mini S&P, GC for gold, W for wheat, etc.).It's followed by an alphanumeric suffix to represent the month and year (Z24, being December 2024).
Most free quotes are delayed by at least 10 minutes. If you want up-to-date, by-the-second quotes, you need to have a subscription with a trading or charting platform, or from a site or service that provides futures quotes.
Reading a Futures Quote
Here is an example from the Wall Street Journal.
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At the very top is the futures contract, which is corn, and this specific contract expires in July 2018 (C being corn, N being July, 8 being the year). It trades on the CBOT.Also near the top is the current price and how much it has moved that day. The quote also shows the trading volume, the low and high price of the day (one-day range), open interest, and high and low prices for the previous 52 weeks.
The graph shows the price movement over the last few trading sessions. Along the bottom is the open and settlement price.
Index Futures
Index futureshave similar-looking quotes. Let's look at another common way to see quotes, which gives you the basic pricing information for multiple contracts (different expiry) with the same future. For example, belowis a quote of E-mini S&P 500 futures, which tradeon the Chicago Mercantile Exchange (CME).
The quote shows the essential information for contracts with different expiry dates. This quote is not quite as detailed as above, but it still provides theexpiry date, last price, change, yesterday's close/settle, today's open, high, low, volume, and the hi/low limit.
The hi/low limitis a threshold set by the exchange. If the price moves to one of these levels (typically not close), trading will be paused so traders can regain their composure and order can be restored to the market.
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Contracts closer to expiry are shown at the top, while those further away are down the list. Volume tends to be higher for contracts closer to expiry. This is because traders close out positions before then. As a contract gets near its expiration, volume thenmoves to the next nearest contract.
Contract Codes
Contract codes are configured with one to three characters. These letters identify the product. These are followed by characters representing the contract's month and year.
The image above lists June, September, and December contracts for the E-Mini S&P 500. While these are spelled out in the chart above, often they are not. Instead, "ESM8" or "ESM18"is displayed. This means "E-mini S&P 500, June 2018."
ES is the ticker symbol for the E-Mini S&P 500. Every futures contract has a ticker symbol. Luckily, most sites and charting platforms let you type a name or ticker into the quote box. For example, when you starttyping crude oil into a futures quote box, it'll bring up an oil futures quote with the ticker CL.
Next, we have the month. This one is trickier because it is based on these codes:
| Month | Month Code |
| January | F |
| February | G |
| March | H |
| April | J |
| May | K |
| June | M |
| July | N |
| August | Q |
| September | U |
| October | V |
| November | X |
| December | Z |
Source: CME Group.
From the table above, you can see if you want to trade an E-Mini S&P 500 contract that expires in June, you'll look for a contract that starts with ESM. For a contract that expires in December, it's ESZ.
For the year you want to trade, you simply tack on theyear you want to trade: 2020 is "20" and 2021 is "21," for example. Some sites and software only use one number on the end, for example, "1" instead of "21."
How Is the Price of a Future Determined?
A futures contract's price depends on the value of the underlying asset, the amount of time until the contract's expiration date, and the agreed-upon price for the future transaction. In general, a future that allows the buyer to buy a commodity or other asset at a lower price than its current market value, the more the contract will be worth.
Who Trades Futures?
Futures are popular with different types of investors and traders. Day traders may trade futures to try to earn a profit from fluctuations in price. These are speculators. Commodity producers and consumers, including major corporations, also use futures contracts to help hedge against volatile commodity prices. Hedging is the reason for a majority of futures trades.
What Is the Difference Between Futures and Options?
Futures and options are both derivatives, but the two have key differences. Options offer the buyer the right, but not the obligation, to buy an asset at a set price before the contract expires, while futures obligate the buyer to purchase the asset at a specific date and price. That obligation can make futures riskier than options.
The Bottom Line
Understanding a futures price quote takes some practice before you can look quickly to get the information you need. There are a lot of different contracts. A tricky thing to get used to is the ticker symbol coding. Since contracts expire, ticker symbols contain contract symbols and the month and year of expiry. When trading futures, ensure you are trading the contract you want, paying particular attention to the monthly code.
