How to Calculate Futures
Futures prices are not as straightforward as stock prices. That being said, you can easily calculate futures prices if you understand what the quoted units mean. Bear in mind that futures markets vary and so the process used to calculate prices for a given futures market may not be appropriate for a different market.
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Instructions
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Find the quantity represented by one contract. Each futures contract represents a standardized quantity of the underlying commodity being traded. For example, one soybean futures contract represents 5,000 bushels of soybeans.
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Understand the significance of the quoted units. In the stock market, the quoted price simply represents the dollar value of one share of stock. In the futures markets, the quoted value relates to the quantity of the commodity represented by the futures contract. In the soybeans market, the quoted units represent cents per bushel. Remember that each soybean futures contract represents 5,000 bushels. Don't forget to consider minimum tick size, which is the smallest increment the price can move in a futures market. For soybean futures, the minimum tick size is one-fourth cent per bushel. This relates to quoted units, in that fractions are typically expressed in eighths, so that a quote of 950-2 represents 950 and 2/8 (1/4) cents.
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Calculate the futures price based on the quantity and quoted units. Using the information from the soybeans example, the quantity is 5,000 bushels and the price is quoted in cents per bushel. Assuming soybean futures are trading at 950-2, the value of one soybean futures contract is 5,000 x 950.25 cents = 4,751,250 cents or $47,512.50.
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- Photo Credit Soybeans image by bonjo from Fotolia.com
