Futures contracts are standardized, which means the exchange sets the contract specification, and one of the most closely watched futures contracts are the E-mini S&P 500, a product of the Chicago Meile Exchange referred to as the CME. So let's examine the key specifications that the SME sets for this particular contract.

Imagine you're considering an investment in the S&P 500 index. When you opt to go long of an E-mini S&P 500 futures contract, you're securing a stake in the index's future performance. The contract size determines just how much of a stake that is and is calculated as $50 multiplied by the S&P 500 index level. Your investments magnitude, therefore, hinges not just on the number of contracts you snap up, but also on the index level at the time of the purchase. This mirrors the principle of stock trading where your investment value in a company like Microsoft, for example, depends on the number of shares and the price at which you acquire them.

Let's talk about tick size. This is the smallest increment by which the price of a futures contract can fluctuate. It is set by the CME at 0.25, so one quarter of one index point for this contract. If the index currently stands at 4,565.75, it can rise to 4,566.0 or drop to 4,565.5, but not any smaller increments. And of course, the price can move in multiples of 0.25, as well as a tick is defined as 0.25 index points, and each full point carries a value of $50. A single tick has a value of $12.50. A movement in the index of 0.25 points translates into a $12.50 movement in the value of one futures contract. The expiry dates for futures are also standardized. The E-mini S&P 500 futures typically expire on the third Friday of the contract month following a quarterly cycle of March, June, September, and December. And for the settlement, unlike some contracts that culminate in the physical exchange of commodities or assets, the E mini S&P 500 futures are settled in cash aligning with CME standards. Now, let's look at a specific example to clarify these points. Consider the ESZ3 futures contract that was set to expire on December 15th 2023, on November 23rd 2023 this contract's price was quoted at 4,565.75 index points. Given our contract size formula, this equates to a contract value of $228,287.50. Purchasing one such contract in November would essentially be equivalent to to investing this amount of money into the S&P 500 index for settlement on December 15th, 2023. The open interest just shy of 2.2 million contracts represents the aggregate risk in the market. To visualize this, if we multiply the open interest by the contract value, we get a staggering value of over $500 billion encapsulating the total risk held in these contracts on that day. Finally, to illustrate the ease of calculating profits and losses in futures contracts, let's consider a scenario. Suppose you've acquired 100 of these ESZ3 contracts at the last quoted price and managed to sell them at a price. 10 index points higher without factoring in transaction costs. Each index point's value at $50 and the quantity of contracts at 100. Your profit would be the product of these numbers amounting to $50,000.