Futures Chain

Futures Chain - Definition

Futures Chain is a table laying out details of the futures contracts being offered for trading for an underlying asset.

Futures Chain - Introduction

A futures chain is what you go to in order to look up all the futures contracts available for trading in order to make a term structure analysis or choose futures contracts for futures trading. Yes, while you get stock prices from stock quotes, you get futures prices from futures chains. As such, learning how to read a futures chain properly is one of the essential skills you need to learn before you could make your first futures trade.

This tutorial shall explore what futures chains are, the kind of information presented in a futures chain and how you use it for your futures trading.

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What Exactly is a Futures Chain?

A futures chain basically lists out all the futures contracts available for trading for an asset and contains all the relevant information pertaining to each futures contract. Such information includes but are not limited to; futures symbol, last traded price, bid ask price, volume and open interest. The image below is an example of a futures chain for S&P500 E-mini futures.

Futures Chain of ES Futures
Futures Chain of ES Futures

Unlike stock options, which has multiple options contracts for each expiration month, futures only have one futures contract per expiration month, making it possible to list all available futures contracts on a single futures chain.

Where to Get Futures Chains

All online futures brokers offer futures chains as part of their inline trading interface. However, if you do not have an online futures trading account and you call in to a physical broker in order to place your orders, you can also get futures chains from other online resources such as Yahoo! Finance Futures Chains.

Information in a Futures Chain

The main pieces of information you can get from a futures chains include; Symbol, Expiration Month, Bid Ask Last prices, Volume and Open Interest.

Symbol: The name of a specific futures contract.

Expiration Month: The month and year in which the specific futures contract expires.

Bid Ask Last Prices: The Bid and Ask prices tells you what price you can buy and sell the futures contract right now. The Last price is the price which the futures contract was last traded but may not be reflective of the market price now. Also, bid ask and last prices are quoted as unit prices. This means that if you want to find out how much you have to pay for initial margin, you will need to multiply the unit price by the Contract Size and then apply the initial margin percentage to it.

Volume: The number of transactions that took place on the futures contract for the day.

Open Interest: The running total number of contracts that are still held by longs and shorts in the market. This number of cumulative and does not reset at the end of each day.

Some futures chains also include the initial margin requirement for each contract so that futures traders need not do all the calculations manually.

Uses of Futures Chain

Futures chains are used when you are looking for futures contracts to trade in order to profit from your specific outlook on the price of the underlying asset. Choosing futures contracts on a futures chain falls under step one of the Steps in Trading Futures. A Futures Chain will tell you what expiration months are available as well as their prices so that you can choose a futures contract that is suitable for your specific outlook and trading horizon.

Futures chains can also be used for plotting the Futures Term Structure by plotting the different prices across the different expiration months, you get a graph telling you how the futures prices are like over multiple expiration months. This information is extremely valuable for analysing the supply and demand condition of the underlying asset. It also tells you if the futures market for a particular asset is a normal market or inverted market and whether or not it is most likely to undergo contango or backwardation. All of these information are critical in futures trading as it affects what happens when you hold futures contracts to expiration on a monthly basis.

Futures chains are also critical when it comes to structuring futures spreads. The information present in a futures chain allows you to make your calculations in order to determine which futures contracts to use for structuring the futures spread you want to.

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