The futures market has a long history that dates back to rice traders in pre-industrial Japan. The the Dojima Rice Exchange was established in that country in 1710 so people could trade rice futures. Commodity futures moved to England, where the London Metals and Market Exchange was formally created in 1877. One of the oldest commodity exchanges happens to be in North America, though. That's the Chicago Board of Trade (CBOT), which was founded in 1848.
Since these milestones, futures trading has become an important part of the investment and trading industry. It allows those who take part to hedge their bets against fluctuations in price, and also helps when it comes to price forecasting. And by bringing key players like consumers and manufacturers together, futures trading aids in the creation of a global marketplace. But what exactly are futures, and how do you read quotes? Read on to check out our quick guide on how to understand futures quotes.
- Futures contracts are traded between two parties, where the buyer agrees to buy a specific amount of product from the seller at an agreed upon price at a future date.
- Some of the features of a futures quotes includes the open price, high and low, the closing price, trading volume, and ticker.
- Contract codes identify the product, month, and year of the contract.
What Is a Future?
A future, also called a future contract, is a financial contract between two parties—a buyer and seller. The buyer agrees to purchase a specific amount of product from the seller such as currencies, commodities, or other financial assets—whatever the futures contract is for—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 purchase the product at the agreed upon price regardless of what the market price may be.
While this is the institutional application, most traders never take physical delivery of the asset whether they're barrels of oil, Japanese yen, or bushels of wheat. Rather, traders make and lose money based on the price fluctuations of the contract, with most traders opting to close their position before the contract expires. The first step in being able to trade futures is to understand a futures price quote.
Understanding futures price quotes is imperative if you're going to trade futures.
Futures trading activity has grown steadily since 2013, according to Statista. As a point of reference, there were more than 17 billion futures contracts traded around the world in 2018. That's a big jump from the 12 billion contracts that were traded in 2013.
Futures Quote Information
When looking up a futures price quote, most sources will provide several basic pieces of information. This includes:
- Open: The price of the first transaction of the day.
- High: The high price for the contract during the trading session.
- 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—the price—and as a percentage value.
- 52-Week High/Low: The highest and lowest prices the contract has traded at in the last 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.
- Contract/Ticker: Each futures contract has a specific name/code that explains what it is and when it expires. That's because there are multiple contracts traded throughout the year—all of which generally expire.
Most free quotes are delayed by at least 10 to 20 minutes. If you want to get up-to-date, by-the-second quotes, you need to have a subscription within a trading or charting platform, or from a site or service that provides futures quotes.
Reading a Futures Quote
Most sources provide quotes that are laid with figures as shown above. Here is an example from the Wall Street Journal.
At the very top is the futures contract, which is corn, and this specific contract expires in July. It trades on the CBOT. Also near the top is the current price, and how much the price has moved up or down during the day. The quote also shows the trading volume, the low and high price of the day—1 day range—open interest, and high and low prices for last 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 have similar looking price quotes as commodity futures. Let's look at another quote which is common, that is seeing the basic pricing information for multiple contracts (different expiry) within the same future. For example, below is a quote of E-mini S&P 500 Futures which trade on the Chicago Mercantile Exchange (CME).
The quote shows basic pricing information for contracts with different expiry dates. This quote is not quite as detailed as the one above, but still provides the expiry date, last price, change, yesterday's close/settle, today's open, high, low, volume, and the Hi/Low Limit.
The Hi/Low Limit are thresholds set by the exchange. If the price moves to one of these levels (they are typically far away), trading will be paused so traders can regain their composure and order can be restored to the market.
Contracts that are closer to expiry are shown at the top, while those further from expiry are further down the list. One of the major things to notice is that volume tends to be higher in the contracts nearer to expiry. This is because traders close out positions before the expiry. As a contract expires, volume then moves into the next closest contract.
Investors should understand what contract codes mean in order to understand expirations. Contract codes are configured with one- to three-characters. These letters identify the product. These are followed by characters that represent the month and year of the contract.
In the image above, there is a June, September, and December contract listed 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 either a name or ticker into the quote box. For example, start typing crude oil into a futures quote box to bring up an oil futures quote, which is ticker CL.
Next we have the month. This one is tricky, because it is based a code.
From the code table above, you can see if you want to trade an E-Mini S&P 500 contract that expires in June, you will be looking for a contract that starts with ESM. For a contract that expires in December, ESZ.
For the year you want to trade, you simply tack on the year you want to trade.
2019 is 19 and 2020 is 20, for example. Some sites and software only uses one number on the end, for example, nine instead of 19. Remember, the further out the contract is from expiry, typically the less volume it has.
The Bottom Line
Understanding a futures price quote takes some practice. There is a lot of information and a lot of different contracts. One of the trickier things to get used to is the ticker symbol coding. Since contracts expire, ticker symbols contain the contract symbol as well as the month and year of expiry. When trading futures, make sure you are trading the contract you want, paying special attention to the monthly code.