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Why are futures contracts so large?
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Why are futures contracts so large?

  #11 (permalink)
Trading for Fun
Rybnik Polska
 
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Trading big futures is just... cheaper.A lot cheaper.Also as above - small trader's is what - some like 10 or 15 % of the market volume.Most popular markets got high tick value and a ,,large''specification - like Kospi Dax Hang Seng Nikkei (NKD/NIY),GL or any others.No one cares about small traders... and even if they do care ( like KRX or Eurex ) they realise after some time... that it is still so small part of the market.So... futures market was - and it still is for big guy's...

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  #12 (permalink)
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trading654 View Post
These are good comments, but still don't really answer the question because even if the contracts were small (such as 1 ounce gold contract), the larger players would still be able to do their thing just fine by simply using more contracts.

By not having small contracts, the exchanges are - whether we like it or not - shutting off a totally different segment of the population from their exchange (the smaller players). I'm just wondering why they did this. There has got to be a good reason the exchanges did this.

http://www.cmegroup.com/education/glossary.html - search for car under the glossary.


Quoting 
A contract or unit of trading. Originally, one contract, or "car," was the quantity of a commodity that would fill a railroad car. See also lot.

No idea how sizing for financial contracts was derived.

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  #13 (permalink)
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grausch View Post
http://www.cmegroup.com/education/glossary.html - search for car under the glossary.



No idea how sizing for financial contracts was derived.

You beat me to it.

They still refer to contracts as "cars," because originally the size of one contract was a railroad carload of whatever the commodity is. That's big.

I have no idea about the size of financials, either, but I do know that they were created to allow the big, big funds to have a way to offset their risks in the stock market by hedging. I was around when they were being created (although too dumb at that time to pay enough attention to the details. Still probably dumb, but at least semi-experienced....)

And sure, then we immediately had some seriously speculative use, too. And I'm sure we always will.

Bob.

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trading654 View Post
These are good comments, but still don't really answer the question because even if the contracts were small (such as 1 ounce gold contract), the larger players would still be able to do their thing just fine by simply using more contracts.

By not having small contracts, the exchanges are - whether we like it or not - shutting off a totally different segment of the population from their exchange (the smaller players). I'm just wondering why they did this. There has got to be a good reason the exchanges did this.

Your thinking about everything in terms of today's internet connected world and electronic exchanges. Many of these contracts have existed for decades and as mentioned by others were designed for commercials not retail. Back in the 80s & 90s floor execution commissions for commercials were as high as $10/RT which for most contracts is equal to a tick. If you made the contracts smaller the execution cost would have been dis-proportionally large vs the value of the contract.

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lower commission costs

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  #16 (permalink)
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trading654 View Post
These are good comments, but still don't really answer the question because even if the contracts were small (such as 1 ounce gold contract), the larger players would still be able to do their thing just fine by simply using more contracts.

By not having small contracts, the exchanges are - whether we like it or not - shutting off a totally different segment of the population from their exchange (the smaller players). I'm just wondering why they did this. There has got to be a good reason the exchanges did this.

The contracts are kept small.

Look at the $ per tick increment - it is intentionally kept small.

So $10 a tick on oil, $12.50 on ES, $5 on YM - to me these are retail sized tick sizes.

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DrewDown View Post
Speculators only came in because there is money to made by providing liquidity.

Futures were not meant for one person working on his own with a $5,000 account. No matter how cheap your broker sets intraday margins.

Any new markets that the CME create will be created for one single purpose - to make money for the CME.

The tick sizes (as per my prior post) and the margins are kept low to encourage the most participants.

So actually, the CME does indeed target the widest range of traders it can - and it will continue to do so. It makes business sense.

SSFs were an attempt to woo stock traders - but that fell flat. Be assured, if the CME can dream up a market and have the CFTC approve it, they will be all over it.

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You have to understand why futures exist. This is a dumbed down version:

I have a product and I want to get the best price for it, there is customer who needs my product but they want to buy it at the best price for them. We go to an auction and contracts to purchase said product are sold. For the auction to work best there needs to be enough participants that are able to buy and sell to create liquidity. CME has done almost everything they can to create liquidity. They have done this by enticing retail investors to put their money into futures.

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grausch View Post
http://www.cmegroup.com/education/glossary.html - search for car under the glossary.



No idea how sizing for financial contracts was derived.

I still call it a car...

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Silly me,

i always tought the pit guys called it a car because the contract size is somewhat the price of a good car.

haha, learn every day.

cheers,

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