Contract size
Family I · Instruments
Not to be confused with lot, futures contract, lot size, forward contract.
Contract size is the standardised quantity that one contract represents, set by the exchange, broker, or counterparty. It converts a quoted price into the cash value of a position and determines the minimum increment in which the instrument can be traded. Contract size varies by instrument, venue, and sometimes by account type.[1]
How contract size works
Every derivative contract specifies a quantity of the underlying. For an equity option, contract size is typically 100 shares in the United States, though this can differ by market. For a commodity future, it is a physical quantity such as 1,000 barrels of crude oil or 5,000 bushels of wheat. For a contract for difference, the provider sets a contract size that may be one unit, one share, or a notional amount.
Position value is calculated as price multiplied by contract size multiplied by number of contracts. A change in contract size therefore changes the monetary effect of a given price move, without changing the quoted price itself.
Worked example
Where contract size is set
For exchange-traded instruments, contract size is defined in the contract specification and is uniform for all participants. For over-the-counter products, it is agreed between the parties or set by the provider's terms. Because contract size affects margin, tick value, and settlement obligations, it is stated in the instrument's specification rather than inferred from the price. Traders should confirm contract size before calculating exposure, as it can differ between similar products on different venues.
Often confused with
- lot
- A lot is the unit in which a trade is placed, while contract size is the quantity that one contract represents; the visible sign is that lot appears in order-entry fields and contract size appears in the instrument specification.
- futures contract
- A futures contract is a binding agreement to buy or sell at a future date, whereas contract size is only the quantity term within that agreement; the visible sign is that a futures contract has a delivery month and exchange listing, while contract size is a number.
- lot size
- Lot size is the number of units in a trade lot, while contract size is the number of units in one contract; the visible sign is that lot size is chosen by the trader and contract size is fixed by the venue.
- forward contract
- A forward contract is a customised agreement between two parties, while contract size is the quantity specified in any contract, custom or standardised; the visible sign is that a forward contract is identified by its counterparties and settlement date, not by a standard contract size.
See also
References
- ↑ Contract specifications published by the broker or exchange for each instrument. Lot sizes, tick sizes and pip values are set per instrument and differ between venues; read the specification for the symbol you trade.