Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 106

January or February deliveries, although this could change in the future.

Quantity
You would also specify how many contracts you want to trade. You need to recognize that a contract denotes different quantities for different commodities. This is where the concept of a trading unit comes into play. We already covered this concept but let's take a quick look again. How much gold does one gold contract signify, or how much crude oil does one crude oil contract denote? The trading unit for each contract will give you that information. For corn contracts, the trading unit is 5,000 bu. (bushels), crude oil contract's trading unit is 42,000 gal. (gallons), for gold the trading unit could be 100 oz. (ounces) or 1 k. (kilogram), depending on the contract, and for pork bellies the trading unit of a contract is 40,000 lbs. (pounds). So if you are trading ten corn contracts, those contracts specify 50,000 bushels of corn. Once again, depending on the exchange, the trading units might be different for similar commodity futures. Be mindful of this difference when ordering contracts, as contract order forms sometimes use the lowest trading units as the basis for quantity. In most cases however the price of a contract should tip you off as to how much of the commodity that contract represents. The quantity used in the context of an order refers to the number of contracts: for example, ten March corn contracts or five June 2001 gold contracts and so on.

Buy Or Sell Or Both
Obviously you need to specify what the nature of the trade is.You are either buying (going long) or selling (going short). But as we discussed before, there is one other specification where you can buy and sell contracts simultaneously. This strategy is known as a spread (or straddle), and it usually involves buying and selling contracts for the same commodity but at different maturity dates, or contracts with the same maturity dates but different but related underlying commodities. Since this type of transaction involves two different contracts, you

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  • Book Chapters
    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

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