NexusFi: Find Your Edge


Home Menu

 





Why are futures contracts so large?


Discussion in Commodities

Updated
      Top Posters
    1. looks_one SMCJB with 6 posts (10 thanks)
    2. looks_two Jigsaw Trading with 6 posts (7 thanks)
    3. looks_3 xplorer with 4 posts (1 thanks)
    4. looks_4 treydog999 with 3 posts (11 thanks)
      Best Posters
    1. looks_one treydog999 with 3.7 thanks per post
    2. looks_two bobwest with 2.3 thanks per post
    3. looks_3 SMCJB with 1.7 thanks per post
    4. looks_4 Jigsaw Trading with 1.2 thanks per post
    1. trending_up 8,517 views
    2. thumb_up 43 thanks given
    3. group 13 followers
    1. forum 37 posts
    2. attach_file 1 attachments




 
Search this Thread

Why are futures contracts so large?

(login for full post details)
  #11 (permalink)
Tommip
Rybnik Polska
 
Posts: 114 since Aug 2015
Thanks Given: 18
Thanks Received: 51

Trading big futures is just... cheaper.A lot cheaper.Also as above - small trader's is what - some like 10 or 15 % of the market volume.Most popular markets got high tick value and a ,,large''specification - like Kospi Dax Hang Seng Nikkei (NKD/NIY),GL or any others.No one cares about small traders... and even if they do care ( like KRX or Eurex ) they realise after some time... that it is still so small part of the market.So... futures market was - and it still is for big guy's...

Reply With Quote

Can you help answer these questions
from other members on NexusFi?
NT7 Indicator Script Troubleshooting - Camarilla Pivots
NinjaTrader
Volume profile TradeStation
EasyLanguage Programming
ISO Equity Curve Indicator
NinjaTrader
The space time continuum and the dynamics of a financial …
Emini and Emicro Index
Searching for CurrentMonthOHL Indicator
NinjaTrader
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Tao te Trade: way of the WLD
37 thanks
Deaddogs Stock Trading
27 thanks
GFIs1 1 DAX trade per day journal
26 thanks
Supertradersams Thread Journal on NQ/MNQ
24 thanks
Leaving CFD trading and learning futures
11 thanks

(login for full post details)
  #12 (permalink)
 grausch 
Luxembourg, Luxembourg
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Stocks
Posts: 494 since May 2012
Thanks Given: 1,731
Thanks Received: 1,159


trading654 View Post
These are good comments, but still don't really answer the question because even if the contracts were small (such as 1 ounce gold contract), the larger players would still be able to do their thing just fine by simply using more contracts.

By not having small contracts, the exchanges are - whether we like it or not - shutting off a totally different segment of the population from their exchange (the smaller players). I'm just wondering why they did this. There has got to be a good reason the exchanges did this.

https://www.cmegroup.com/education/glossary.html - search for car under the glossary.


Quoting 
A contract or unit of trading. Originally, one contract, or "car," was the quantity of a commodity that would fill a railroad car. See also lot.

No idea how sizing for financial contracts was derived.

Reply With Quote
The following 3 users say Thank You to grausch for this post:
(login for full post details)
  #13 (permalink)
 
bobwest's Avatar
 bobwest 
Western Florida
Site Moderator
 
Experience: Advanced
Platform: Sierra Chart
Trading: ES, YM
Posts: 8,146 since Jan 2013
Thanks Given: 57,150
Thanks Received: 26,210



grausch View Post
https://www.cmegroup.com/education/glossary.html - search for car under the glossary.



No idea how sizing for financial contracts was derived.

You beat me to it.

They still refer to contracts as "cars," because originally the size of one contract was a railroad carload of whatever the commodity is. That's big.

I have no idea about the size of financials, either, but I do know that they were created to allow the big, big funds to have a way to offset their risks in the stock market by hedging. I was around when they were being created (although too dumb at that time to pay enough attention to the details. Still probably dumb, but at least semi-experienced....)

And sure, then we immediately had some seriously speculative use, too. And I'm sure we always will.

Bob.

Reply With Quote
The following 2 users say Thank You to bobwest for this post:
(login for full post details)
  #14 (permalink)
 
SMCJB's Avatar
 SMCJB 
Houston TX
Legendary Market Wizard
 
Experience: Advanced
Platform: TT and Stellar
Broker: Advantage Futures
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Posts: 5,008 since Dec 2013
Thanks Given: 4,334
Thanks Received: 10,100


trading654 View Post
These are good comments, but still don't really answer the question because even if the contracts were small (such as 1 ounce gold contract), the larger players would still be able to do their thing just fine by simply using more contracts.

By not having small contracts, the exchanges are - whether we like it or not - shutting off a totally different segment of the population from their exchange (the smaller players). I'm just wondering why they did this. There has got to be a good reason the exchanges did this.

Your thinking about everything in terms of today's internet connected world and electronic exchanges. Many of these contracts have existed for decades and as mentioned by others were designed for commercials not retail. Back in the 80s & 90s floor execution commissions for commercials were as high as $10/RT which for most contracts is equal to a tick. If you made the contracts smaller the execution cost would have been dis-proportionally large vs the value of the contract.

Reply With Quote
The following 3 users say Thank You to SMCJB for this post:
(login for full post details)
  #15 (permalink)
 Itchymoku 
Philadelphia
 
Experience: None
Platform: corded black telephone
Trading: ticker tape
Posts: 2,894 since Apr 2012
Thanks Given: 1,683
Thanks Received: 3,681

lower commission costs

R.I.P. Joseph Bach (Itchymoku), 1987-2018.
Please visit this thread for more information.
Reply With Quote
(login for full post details)
  #16 (permalink)
 
Jigsaw Trading's Avatar
 Jigsaw Trading  Jigsaw Trading is an official Site Sponsor
 
Posts: 2,988 since Nov 2010
Thanks Given: 831
Thanks Received: 10,392


trading654 View Post
These are good comments, but still don't really answer the question because even if the contracts were small (such as 1 ounce gold contract), the larger players would still be able to do their thing just fine by simply using more contracts.

By not having small contracts, the exchanges are - whether we like it or not - shutting off a totally different segment of the population from their exchange (the smaller players). I'm just wondering why they did this. There has got to be a good reason the exchanges did this.

The contracts are kept small.

Look at the $ per tick increment - it is intentionally kept small.

So $10 a tick on oil, $12.50 on ES, $5 on YM - to me these are retail sized tick sizes.

If you have any questions about the products or services provided, please send me a Private Message or use the futures.io " Ask Me Anything" thread
Visit my NexusFi Trade Journal Reply With Quote
The following user says Thank You to Jigsaw Trading for this post:
(login for full post details)
  #17 (permalink)
 
Jigsaw Trading's Avatar
 Jigsaw Trading  Jigsaw Trading is an official Site Sponsor
 
Posts: 2,988 since Nov 2010
Thanks Given: 831
Thanks Received: 10,392


DrewDown View Post
Speculators only came in because there is money to made by providing liquidity.

Futures were not meant for one person working on his own with a $5,000 account. No matter how cheap your broker sets intraday margins.

Any new markets that the CME create will be created for one single purpose - to make money for the CME.

The tick sizes (as per my prior post) and the margins are kept low to encourage the most participants.

So actually, the CME does indeed target the widest range of traders it can - and it will continue to do so. It makes business sense.

SSFs were an attempt to woo stock traders - but that fell flat. Be assured, if the CME can dream up a market and have the CFTC approve it, they will be all over it.

If you have any questions about the products or services provided, please send me a Private Message or use the futures.io " Ask Me Anything" thread
Visit my NexusFi Trade Journal Reply With Quote
The following user says Thank You to Jigsaw Trading for this post:
(login for full post details)
  #18 (permalink)
 
tturner86's Avatar
 tturner86 
Portland, Oregon
 
Experience: Intermediate
Platform: F-16CM-40
Trading: GBU-39
Posts: 6,191 since Sep 2013
Thanks Given: 10,459
Thanks Received: 12,694

You have to understand why futures exist. This is a dumbed down version:

I have a product and I want to get the best price for it, there is customer who needs my product but they want to buy it at the best price for them. We go to an auction and contracts to purchase said product are sold. For the auction to work best there needs to be enough participants that are able to buy and sell to create liquidity. CME has done almost everything they can to create liquidity. They have done this by enticing retail investors to put their money into futures.

Visit my NexusFi Trade Journal Reply With Quote
The following 2 users say Thank You to tturner86 for this post:
(login for full post details)
  #19 (permalink)
 
tturner86's Avatar
 tturner86 
Portland, Oregon
 
Experience: Intermediate
Platform: F-16CM-40
Trading: GBU-39
Posts: 6,191 since Sep 2013
Thanks Given: 10,459
Thanks Received: 12,694


grausch View Post
https://www.cmegroup.com/education/glossary.html - search for car under the glossary.



No idea how sizing for financial contracts was derived.

I still call it a car...

Visit my NexusFi Trade Journal Reply With Quote
The following user says Thank You to tturner86 for this post:
(login for full post details)
  #20 (permalink)
 DobermanTrading 
SE Asia / Canada
 
Experience: Intermediate
Platform: FXCM's Trading Station
Broker: Darwinex, FXCM, Tradingview
Trading: Forex and CFD's
Posts: 114 since Jun 2010
Thanks Given: 26
Thanks Received: 109


Silly me,

i always tought the pit guys called it a car because the contract size is somewhat the price of a good car.

haha, learn every day.

cheers,

Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote





Last Updated on December 21, 2016


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts