10 Questions
What is a key characteristic of a futures contract?
It is a standardized contract
What is a restriction on trading futures contracts?
Only whole contracts can be traded
What is a feature of the terms of a futures contract?
They are standardized and non-negotiable
Why are futures contracts traded on an exchange?
Because they are standardized contracts
What is a benefit of the standardization of futures contracts?
It facilitates trading on a futures exchange
What is a common aspect of settlement in futures contracts?
Either physical delivery or cash settlement
What determines the quality of a commodity in a futures contract?
Trade or quality considerations
What is the primary purpose of a futures exchange?
To provide a platform for standardized futures contracts
What is a key aspect of the quantity of goods in a futures contract?
It is a given quantity, and only whole contracts can be traded
What is the currency of a futures contract typically denominated in?
A specific currency, such as the US dollar
Study Notes
Futures Contract Trading
- Futures contracts are traded on a futures exchange, subject to the exchange's rules and regulations.
- Standardization of the futures contract facilitates secondary market trading.
Key Characteristics of Futures Contracts
- Relates to a specific quantity of the underlying asset.
- Only whole contracts can be traded.
- Trading of fractional contracts is not allowed.
- Terms of the futures contract are non-negotiable.
Futures Contract Characteristics
- Futures contracts are traded on a futures exchange, subject to the exchange's rules and regulations.
- Standardization of futures contracts enables secondary market trading.
- Futures contracts relate to a specific quantity of the underlying asset, with only whole contracts tradeable (fractional contracts not allowed).
- Terms of futures contracts are non-negotiable.
Contract Specifications
- Unit of measurement is specified in the contract.
- Settlement terms are defined, with options for physical delivery of a given quantity of goods or cash settlement.
- Quantity of goods to be delivered or covered under the contract is specified.
- Currency in which the futures contract is quoted is defined.
- Trade or quality considerations may be included, such as specific octane of gasoline or purity of metal, or certain conditions of the commodity.
Learn about the standardized futures contracts traded on exchanges, their rules and regulations, and the terms of trading. Understand the characteristics of futures contracts, including quantity and negotiability.
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