T2W Trading Community

Precious Metals Futures
Gold, Platinum and Palladium Futures Gold, platinum and palladium are quoted just as they appear, the decimal included in the quotes are intended to separate dollars and cents. The numbers to the left of the decimal are dollars and the numbers to the right are cents. In other words, a point in these metals contracts is synonymous with a cent. For example, if gold is trading at 830.20 and rallies 60 cents the price will be 830.80, or simply $830.80. Platinum and palladium are treated the same; there are no surprises here. However, their point values do differ. Palladium has an equivalent point value as gold, $100 per dollar of price movement but the point value and contract size of platinum is half of that of gold and palladium.

A gold futures contract represents 100 ounces of the underlying commodity. Each penny of price movement results in a profit or loss of $10 to the trader and each full dollar movement in price represents $100 of profit or loss. Accordingly, if gold rallies from $849.20 to $856.80 a long trader would have made $7.60 or $760 and a short trader would have lost that amount (not considering commissions and fees).

856.80 - 849.20 = 7.60
7.60 x $100 = $760 (minus commissions and fees)

Silver Futures
The manner in which silver futures are quoted is more similar to grains such as corn and wheat than it is the other precious metals. A silver contract represents 5,000 ounces of the underlying commodity creating a cent value of $50. With that said, for every penny that the futures market moves a trader will make or lose $50. Likewise, silver trades in fractions of a cent. If the price is quoted as 1634.5 it should be read as $16.34 1/2. Please note that the CBOT version of the silver contract trades in tenths of a cent such as 1634.1 or sixteen dollars and thirty four and one tenth of a cent.

Calculating profit and loss in silver is identical to doing so in corn, wheat or soybeans. If you sell silver at 13.450 ($13.45) and are stopped out at 1362.5 ($13.62 1/2) you would have lost 17.5 cents or $875 ($50 x 17.5).

Copper Futures
Unlike the other metals which are referred to in terms of cents per ounce, copper is quoted in cents per pound. The contract size is 25,000 pounds making the multiplier $250 for a penny move. Simply put, if copper rises or falls by one cent a futures trader would make or lose $250. This makes sense because if the price of copper goes up by 1 penny you would make 25,000 pennies on a long futures position. Also unlike gold futures, copper prices trade in fractions of a cent. If you see copper quoted at 3.055 it is trading at $3.05 1/2. Likewise, if copper rallies from this price to 3.450, it represents a gain of 39.5 cents or $9,875 ($250 x 39.5) per contract. This sounds great if you happened to be long, but a short trader during this move likely lost a lot of sleep.

The Energies
Crude oil is one of the most talked about commodities but is also one of the most challenging markets to speculate. Light sweet crude (not to be confused with brent crude) is quoted in dollars per barrel. From a trading standpoint, it is relatively simple to calculate profit, loss and risk due to the fact that it is quoted in dollars and cents as we are accustomed to in everyday life. The contract size is 1,000 barrels, so each penny of price movement in crude represents $10 of risk to a commodity trader.

A price quote of 120.00 is just as it appears, $120.00 per barrel of crude. A drop in price from 120.00 to 118.00 is equivalent to a $2,000 profit or loss for a futures trader. Remember, each penny is worth $10 to a trader and a $2 move in price is 200 cents.

Heating oil and unleaded gasoline are much more complicated to figure. Both are quoted in cents per gallon, similar to how it is displayed to you at a gas station pump. Consequently, in both cases the decimal point separates the dollars from the cents and each of them trade in fractions of a cent. The contract size for each is 42,000 gallons, so each point in price movement is worth $4.20 cents to a futures trader and each penny (100 points) is worth $420. For example, if heating oil is trading at 4.1060 ($4.10 6/10) and rallies to a price of 4.2140 ($4.21 4/10) the futures contract has gained 10.8 cents or $4,536 (10.8 x $420). By this example you can see how easily money can be made or lost in the futures market. A price move of less than 11 cents could result in a profit or loss of several thousand dollars.

Natural gas is quoted in BTU's or British Thermal Units which is a measurement of heat and has a contract size of 10,000 mmBTU or million BTU's. Each tick of price movement in this contract is valued at $10 and there are 1000 ticks in a dollar of price movement. Thus, for every dollar move in natural gas the value of the contract appreciates or depreciates by $10,000. To illustrate, if the market rallies from 7.305 or $7.30 1/2 to 8.305 a trader would have made or lost $10,000 on one futures contract. This should be enough to deter you from this market, unless of course you have deep pockets.

Currency Futures
Currency futures are traded electronically on the CME's Globex platform and are, for the most part, traded in "American terms". This simply means that the prices listed in the futures market represent the dollar price of each foreign currency or how much in U.S. dollars it would cost to purchase one unit of the foreign currency. In order to understand the point of view of the futures price ask yourself; "How much of our currency does it take to buy one theirs?"

If the Euro is trading at 1.4639, it takes $1.46 39/100 U.S. greenbacks to purchase one Euro. The value of one futures contract is 125,000 Euro so each tick higher or lower changes the price of the contract by $12.50 and translates into a profit or loss to the trader in that amount. A majority of the currency futures contracts have a tick value of $12.50; others that share this characteristic are the Swiss Franc, Japanese Yen, and the Mexican Peso. The Australian Dollar and the Canadian Dollar both have a tick value of $10 and the British Pound fluctuates in ticks of $6.25. Once you know the tick value of each of these contracts, it is easy to compute the dollar amount of risk, profit and loss. For example, a trader that is long the Euro from 1.4239 and liquidates the position at 1.4432 would be profitable by 193 ticks or $2,412.50 (193 x $12.50).

***There is substantial risk in trading options and futures. It is not suitable for everyone.