Contract Unit

Dictionary Says

Definition of 'Contract Unit'

The actual amount of the underlying asset represented by a single futures or derivatives contract. The underlying asset could be anything that is traded on a futures exchange, from agricultural commodities and metals to currencies and interest rates. Since futures contracts are highly standardized, the contract unit will specify the exact amount and specifications of the asset, such as the number of barrels of oil or amount of foreign currency. The contract unit for an options contract is 100 - meaning that every contract is for the purchase or sale of 100 shares.

Also known as trading unit.

Investopedia Says

Investopedia explains 'Contract Unit'

Different futures contracts have different contract units and measurements. For example, a CAD/USD (Canadian dollar/U.S. dollar) futures contract traded on the Chicago Mercantile Exchange (CME) has a contract size of C$100,000, while an E-mini contract also traded on the CME has a size of C$10,000. A EUR/USD contract on the CME has a size of E$125,000, while a gold futures contract has a size of 100 troy ounces. As a result of these differences in sizes and specifications, there may be considerable variances in the actual dollar value of different futures contracts.

Contract units make it easy for investors to decide on the number of contracts needed to hedge their exposure. For example, a U.S. company that has to pay C$1 million to its Canadian supplier in three months and wishes to hedge its exposure to a rising Canadian dollar, can do so through the purchase of 10 CAD/USD futures contracts.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Basis

    1. The variation ...
  2. Basis Grade

    The minimum ...
  3. Futures Contract

    A contractual ...
  4. Buyer's Call

    An agreement ...
  5. Buyer's Market

    A situation in ...
  6. Cash Price

    The actual ...
  7. Cash Settlement

    A settlement ...
  8. Cash Commodity

    In futures ...
  9. Cost Of Tender

    The total ...
  10. Delivery Notice

    A notice written ...

Articles Of Interest

  1. Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  2. Interpreting Volume For The Futures Market

    Learn how to read the volume reports, look at the relation to liquidity and interpret volume using open interest.
  3. Options On Futures: A World Of Potential Profit

    There's one simple hurdle in the transition from stock to futures options: learning about product specifications.
  4. Retirement Savings Tips For 35- To 44-Year-Olds

    Learn how the "sandwich generation" can save for retirement while taking care of their kids and parents.
  5. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  6. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  7. Finding Your Investing Comfort Zone

    Choosing the right investments for you is the best way to feel comfortable with your portfolio.
  8. Investors: Rely On Your Gut

    Find out how your personality and natural instincts can direct your investment choices.
  9. Simplify Your Portfolio

    Faced with an overabundance of choices, many investors forget to stick to the basics.
  10. Hedging With ETFs: A Cost-Effective Alternative

    The benefits of ETFs for hedging are clear and investors of all sizes are taking notice.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center