Contract size definition
Contract size is the deliverable amount of a market that makes up a futures or options contract, spot forex or CFDs. These vary between markets and assets.
For instance, in forex the standard size of one contract is typically 100,000 units of the currency. Whereas for stocks, the typical size of a futures contract is 100 shares.
A benefit of having contract sizes is that traders and investors know how much of a market they are trading. The size of the contract is a definitive quantity that is often standardised across the board, meaning regardless of the broker, the size of one contract for a market is usual the same.
It’s crucial to know the size of the contract you are trading as this will help you know exactly how much exposure you have. This is also significant when thinking about risk management, as you’ll need to know how much you might potentially lose based on the amount you are trading.
How do you determine contract size?
To determine the total contract size, all you need to do is simply look at the market information for the market you’re trading. This information will be available directly from your trading platform.
You can then use this to work out the total size of your trade. Let’s use an Apple CFD as an example. One Apple CFD is equivalent to one stock of Apple. If Apple’s price is $120 and you purchase 100 CFDs on Apple shares, the total cost of the trade is $12,000 ($120 x 100 CFDs).
With this long position, if Apple’s stock rises to $130, you would make a profit of $1,000 ($10 x 100) by closing out the position.
Contract sizes are standardised across the industry. For instance, a standard contract size for forex is 100,000 units of the base currency. However, ‘mini’ and ‘micro’ contracts are also available. In forex, a mini contract is 10,000 units and a micro contract is 1,000.