Understanding a commodity futures contract is essential before placing a trade. Each line in the contract holds critical data, symbol, expiry, tick size, margin, and more.
What You Will Learn:
By the end of this guide, you will be able to:
- Identify each component of a commodity futures contract (symbol, expiry, lot size, etc.)
- Decode contract symbols like NGU25 using the standard month code system
- Interpret tick size, tick value, and price quotation correctly
- Understand margin, leverage, and delivery terms to manage trading risk
- Read a full contract specification confidently and independently
Example of a Real Commodity Futures Contract
Below is a representative layout of a commodity futures contract specification. This sample is based on standard formats published by major exchanges such as MCX and CME.
Each field will be decoded in subsequent sections.
Example: Gold Futures Contract Specification
| Field | Value |
| Symbol | GOLD |
| Contract Expiry | 05-Aug-2025 |
| Lot Size | 1 kg |
| Tick Size | ₹1 |
| Tick Value | ₹1 per tick |
| Quotation/Price Basis | ₹ per 10 grams |
| Daily Price Limit | 4% of previous close |
| Initial Margin | ₹1,00,000 |
| Maintenance Margin | ₹90,000 |
| Delivery Unit | 1 kg |
| Delivery Center | Ahmedabad |
| Settlement Type | Physical |
| Trading Hours | 9:00 AM – 11:30 PM (IST) |
| Exchange | MCX |
This contract format reflects the core structure used across most commodity exchanges. Each data point represents a critical parameter in trade execution, margin calculation, risk evaluation, and expiry tracking.
Step-by-Step Guide to Reading a Commodity Futures Contract
Each parameter in a commodity futures contract has a specific role in determining trade eligibility, position sizing, margin exposure, and settlement obligations.
The following breakdown explains how to interpret each line of the contract.
1. Symbol & Contract Code
The symbol identifies the underlying commodity. The contract code includes the commodity, expiry month, and year. For instance, NGU25 represents Natural Gas expiring in August 2025.
The letter “U” corresponds to August as per the standard month code system:
| Month | Code |
| January | F |
| February | G |
| March | H |
| April | J |
| May | K |
| June | M |
| July | N |
| August | U |
| September | V |
| October | X |
| November | Y |
| December | Z |
Exchanges follow this code structure universally. However, formatting may differ across platforms. For example, CME codes may display “CLQ5” while MCX may use “CRUDEOIL AUG 25.”
2. Contract Size (Lot Size)
Lot size defines the fixed quantity of the underlying commodity per contract. For example, 1 lot of Gold = 1 kg on MCX.
Larger lot sizes increase capital exposure and potential gains or losses per price movement. A contract for Natural Gas on CME might represent 10,000 MMBtu, requiring significantly higher margin.
Always verify lot size through official contract specifications. It directly impacts trade cost, margin allocation, and stop-loss calculations.
3. Tick Size & Tick Value
Tick size is the smallest permissible price movement. Tick value represents the monetary impact of that movement per contract.
For example, if tick size is ₹1 and lot size is 1 kg, the tick value is ₹1 per contract. In a larger contract (e.g., Silver 30 kg), the tick value would be ₹30.
Tick value helps calculate profit or loss from each fluctuation. It is essential for setting risk levels, trailing stops, and evaluating trade frequency in volatile markets.
4. Price Quotation & Currency
Futures contracts display prices based on a specific quantity and currency. For example:
- Gold is quoted in ₹ per 10 grams on MCX
- Crude oil is quoted in USD per barrel on CME
Understanding quotation format prevents misjudging trade value. Cross-commodity comparisons require attention to units (kg vs ton) and currency exposure.
5. Expiry Date / Delivery Month
The expiry date marks the last trading day. After expiry, the contract settles—either by delivery or in cash.
- Physical settlement requires possession or delivery (e.g., Gold, Silver on MCX)
- Cash settlement is based on the final price (e.g., some energy contracts on CME)
Near expiry, liquidity shifts to the next month’s contract. Failing to exit on time can trigger auto-square-off or unintended delivery obligations.
6. Margin & Leverage Details
Margins are upfront funds required to open a position. Futures involve:
- Initial Margin: Required to enter the trade
- Maintenance Margin: Minimum balance to keep the trade open
Leverage multiplies exposure but increases risk. Margin values may differ between exchanges and brokers. Always consult live margin portals for accuracy.
If the margin balance falls below the maintenance level, the broker may trigger a margin call or forcibly close positions.
7. Exchange & Trading Hours
Futures contracts are exchange-specific. Trading hours vary:
- MCX: 9:00 AM to 11:30 PM IST
- CME: 6:00 PM to 5:00 PM CT (next day), Sunday to Friday
Time zone differences affect news reactions and trading overlap. Ensure awareness of local vs global timings, especially for contracts traded across markets.
How to Interpret a Sample Commodity Futures Contract
This section revisits the earlier futures contract example. Using the field-by-field breakdown, the contract can now be interpreted accurately without additional guidance.
Gold Futures Contract Specification – Interpreted Version
| Field | Value | Explanation |
| Symbol | GOLD | Underlying commodity traded is Gold |
| Contract Expiry | 05-Aug-2025 | Final trading day; position must be closed or settled by this date |
| Lot Size | 1 kg | Each contract controls 1 kg of Gold |
| Tick Size | ₹1 | Minimum price movement allowed is ₹1 |
| Tick Value | ₹1 per tick | Every ₹1 move results in ₹1 profit/loss per lot |
| Quotation/Price Basis | ₹ per 10 grams | Price displayed is per 10 grams; actual value for 1 kg = price × 100 |
| Daily Price Limit | 4% of previous close | Maximum intraday movement allowed before circuit breaks apply |
| Initial Margin | ₹1,00,000 | Amount required to open one contract position |
| Maintenance Margin | ₹90,000 | Minimum balance to retain the position |
| Delivery Unit | 1 kg | Settlement requires 1 kg physical Gold per contract |
| Delivery Center | Ahmedabad | Delivery location if not squared off before expiry |
| Settlement Type | Physical | Position results in physical Gold delivery unless closed |
| Trading Hours | 9:00 AM – 11:30 PM (IST) | Market available for trading during these hours |
| Exchange | MCX | Contract listed and traded on Multi Commodity Exchange of India |
Each field now represents actionable information. The symbol and expiry guide contract selection. Lot size, tick value, and quotation affect position sizing and margin calculation. Delivery terms define closure obligations.
With these interpretations, the contract can be read, assessed, and executed with clarity across any commodity on any major futures exchange.
Common Mistakes Traders Make When Reading Futures Contracts
Note: The following points serve as a cautionary reference. These common misinterpretations can lead to mispricing, incorrect position sizing, or unintended settlement outcomes.
- Confusing Lot Size with Tick Value
Traders often assume that tick value is constant across commodities. In reality, tick value is a function of tick size and lot size. A ₹1 tick in Silver (30 kg) impacts P&L far more than the same tick in Gold (1 kg). - Misreading the Expiry Month Code
Month codes (e.g., “U” for August) are often overlooked, resulting in trades on unintended contracts. This is critical when multiple contracts for the same commodity are live simultaneously. - Ignoring the Quotation Basis
A commodity priced per 10 grams (Gold) differs from one quoted per kg or barrel. Misjudging this can result in incorrect profit/loss expectations or margin errors. - Assuming All Contracts Are Cash-Settled
Some traders forget to check the settlement type. Physical delivery contracts, if not squared off in time, can create delivery liabilities and increased costs. - Neglecting Trading Hours and Time Zones
Overlooking exchange-specific timing, especially in globally traded commodities, can cause delayed entries or exits—impacting execution price and risk exposure.
Use the contract specification as a technical document. Precision in reading it is non-negotiable for risk-managed futures trading.
How to Confidently Read Any Commodity Futures Contract
From contract code to tick size, quotation basis, margin requirements, and expiry structure — each component of a commodity futures contract has now been decoded.
You’ve seen how to:
- Identify and interpret contract symbols like NGU25
- Calculate tick value and its impact on your P&L
- Read lot size, expiry rules, delivery obligations
- Navigate exchange-specific trading hours and formats
Use this guide as a reference before placing your next commodity futures trade.
A clear reading of the contract specification is the foundation of risk-managed, informed, and strategic futures trading.
FAQs
Q1. How do I decode a futures contract symbol like NGU25?
Understand the commodity root symbol (e.g., NG = Natural Gas), the month code letter (U = August), and the two‑digit year (25 = 2025). These combined characters uniquely identify the contract (e.g., NGU25 = Natural Gas August 2025).
Q2. What is the lot size in a futures contract and how does it affect margin?
The lot size defines the standardized quantity of the underlying commodity (e.g., 1 kg of gold). It determines total exposure and directly influences initial and maintenance margin requirements. Larger lot sizes require proportionally higher capital.
Q3. How are tick size and tick value used in trade calculations?
Tick size is the smallest allowed price increment (e.g., ₹1). Tick value is the monetary impact per tick multiplied by contract size. It helps calculate profit/loss per price movement and set effective stop-loss levels.
Q4. What does the quotation basis mean in a futures contract?
Quotation basis refers to the unit and currency in which a contract’s price is quoted (e.g., ₹ per 10 grams of gold or USD per barrel of crude oil). Misinterpreting this can lead to incorrect trade valuations and risk estimates.
Q5. How can I verify the margin and leverage details for a specific contract?
Contract specifications usually include initial and maintenance margin values. Always verify live margins via exchange or broker tools to assess exposure and potential margin calls for the contract you’re trading.
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