Contract Unit

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.

BREAKING DOWN '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.

RELATED TERMS
  1. Cash Settlement

    A settlement method used in certain future and option contracts ...
  2. Cost Of Tender

    The total charges associated with the delivery and certification ...
  3. Basis Grade

    The minimum accepted standard that a deliverable commodity must ...
  4. Basis

    1. The variation between the spot price of a deliverable commodity ...
  5. Cash Price

    The actual amount of money that is exchanged when commodities ...
  6. Cash Commodity

    In futures trading, the cash commodity is delivered for payments. ...
Related Articles
  1. Options & Futures

    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.
  2. Options & Futures

    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.
  3. Insurance

    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.
  4. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
  5. Options & Futures

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
  6. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  7. Term

    What is Pegging?

    Pegging refers to the practice of fixing one country's currency to that of another country. It also describes a practice in which investors avoid purchasing security shares underlying a put option.
  8. Home & Auto

    Understanding Pre-Qualification Vs. Pre-Approval

    Contrary to popular belief, being pre-qualified for a mortgage doesn’t mean you’re pre-approved for a home loan.
  9. Investing Basics

    An Introduction To Structured Products

    Structured products take a traditional security and replace its usual payment features with a non-traditional payoff.
  10. Options & Futures

    Contango Versus Normal Backwardation

    It’s important for both hedgers and speculators to know whether the commodity futures markets are in contango or normal backwardation.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  3. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  4. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  5. Can mutual funds invest in options and futures? (RYMBX, GATEX)

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  6. Can mutual funds invest in commodities?

    Mutual funds can invest in commodities. In fact, mutual funds may provide a better way for investors to gain exposure to ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center