What one contract actually controls

Oil at $80 sounds like something you could afford. This lesson is about why that sentence is a trap.

The multiplier is the instrument

A price is per unit. A contract is thousands of units. One WTI futures contract is 1,000 barrels, so oil at $80 is a position of $80,000 - and a $2 move, the kind that happens before lunch, is $2,000 per contract, in or out of your account.

Every product carries its own multiplier. Gold trades in contracts of 100 troy ounces, so a $2,400 price is a $240,000 contract. Chicago wheat and corn are 5,000 bushels. Henry Hub natural gas is 10,000 MMBtu. None of these numbers is guessable from the price; each comes from the exchange's contract specification, and each one turns the innocent-looking quote into the actual size of the promise you are holding.

The cents trap

Grain quotes add an extra snare: they are in cents per bushel, not dollars. Wheat at 550 is $5.50 a bushel - and 5,000 bushels at $5.50 is $27,500 of wheat. Read the 550 as dollars and every number you compute afterwards is a hundred times too large. Every market has one convention like this lying in wait; commodities have several, and module 2 catalogues them.

Margin is not the size of anything

Your broker will hold a few per cent of the notional as margin, and that small deposit is the number that feels like the size of your trade. It is not. Profit and loss accrue on the notional - the full thousand barrels move together, whether or not you noticed you owned a thousand of anything. Work the example below in your own currency, then use the calculator until per-contract notional is something you check by reflex, before entry, every time.

Retail wrappers exist precisely because these contracts are too large for most accounts - a CFD can slice the barrel into affordable pieces. What the slicing costs is module 3. What it cannot change is the arithmetic on this page.