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The world of trading has many parts that seem a little foreign to new traders. There are plenty of catch phrases, symbols, and other banter that can be intimidating or even confusing at first. One of the biggest sources of confusion includes the shorthand that you see for many markets. Understanding what you are reading is important, and learning the basic lingo can come in handy.

 

Everything has a specified time and place

 

All futures contracts (be it for commodities or financial instruments) have very specific parts, quantities, and dates associated with them – and that’s before you even worry about the price! Not all contracts are created equal. The value of the S&P 500 contract is five times the value of the e-mini S&P 500 contract. Those are two symbols you wouldn’t want to confuse! If there are markets you want to trade, visit the exchange’s website and learn about the key parts for each contract. These will include:

The contract size

The futures months for the contract

The format for the price quote

The smallest amount by which the price of the contract can move (whole points or fractions of a point, also known as minimum tick)

Any daily trading limits for price movements

Trading symbols for the contract

- And much more!

 

Gimme an H! Gimme a U!

 

Memorizing all of this might seem like a bit of overkill, but in modern electronic markets making a mistake can happen in seconds and cost an unlimited amount of loss and confusion. Just remember that “fat finger” trade and the trouble it caused!

Let’s take a look at a contract I trade, the e-mini S&P 500. This futures market trades electronically (hence the “e”) on the CME Group’s Globex platform. On their website, I can go to Contract Specifications and learn that:

The symbol for this market is ES. I can use this code to find price quotes on many tickers.

The contract size is $50 x the e-mini S&P 500 futures price. I can use this value to calculate the dollar risk/gain per point in the market. Basically, if each point is worth $50, a 3 point movement would be $150. If I want to calculate the total dollar value of a single contract, I just have to multiply the current price by $50. If the market is trading at 1,280.00 that means it is worth 1280 x $50 = $64,000.

The minimum price fluctuation is 0.25. That means that if I am making an offer or trying to quote a price, I know that there are quarter point increments so I can’t offer a price like 1265.30 in this market. It would have to be 1265.25 or 1265.50.

The contract details also list the trading times so I know when a session begins and ends, and also the trading contract months. This market has contracts for March, June, September and December (the quarterly cycle) – these months will be written with their own symbols as well – H, M, U, Z. The full list of monthly symbols is:

 

JAN - F

FEB - G

MAR - H

APR - J

MAY - K

JUN - M

JUL - N

AUG - Q

SEP - U

OCT - V

NOV - X

DEC - Z

 

Each contract will expire at some point, and that date is relative to the contract month.

If you can understand the lingo, you can avoid costly mistakes

Some of this might seem like a no-brainer; after all, a lot of trading programs will give you the info with a single keystroke so you don’t have to memorize all of it. The reason I think it is still relevant to know this is because taking the time to learn and understand how the markets work and what the lingo means can save you potential trouble. What happens if you are long ESU11 and you try to close the position by selling ESZ11? Can’t do it – you would know that the ES U11 is the e-mini S&P 500 for September (U) 2011 and the ES Z11 is the e-mini S&P 500 for December (Z) 2011.

Best Trade To You,

 

Larry Levin

Founder & President - Trading Advantage

__________________

Larry Levin's Trading Advantage is a leading investment education firm that empowers traders to achieve and surpass their financial goals. More than 50,000 students have used Larry Levin's proven techniques for powerful results.

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