# What Is a Contract?

> In trading, a contract is one standard unit of a future or option. Learn contract sizes, multipliers, how to work out a contract's value and why it matters for risk.

Source: https://learn.tradelabsai.com/markets/what-is-a-contract/  
Track: Markets and Instruments · Level: Beginner · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "What Is a Contract?", https://learn.tradelabsai.com/markets/what-is-a-contract/

In trading, a contract usually means one standard unit of a derivative, such as one futures contract or one options contract. Unlike shares, which you can buy one at a time, contracts come in fixed sizes set by the exchange. Knowing exactly how much one contract controls is the first step to sizing positions safely, because a single contract can represent tens or hundreds of thousands of dollars of exposure.

## Contracts are standardised

Exchanges define every detail of each contract so that all contracts of the same type are identical and interchangeable. That standardisation is what allows thousands of traders to buy and sell the same contract on an open market. The key terms are published in the contract specifications. See [Contract Specifications](https://learn.tradelabsai.com/futures/contract-specifications/).

| Term | What it defines |
|---|---|
| Underlying | What the contract is based on, such as crude oil or the S&P 500 |
| Contract size or multiplier | How much of the underlying one contract represents |
| Tick size | The smallest price change allowed |
| Tick value | How much money one tick is worth per contract |
| Expiry | When the contract ends |
| Settlement | Cash or physical delivery |

## The multiplier: turning price into money

The multiplier converts the quoted price into the contract's money value.

```
Contract value = Price × Multiplier
```

**Example: Working out contract values**
**E-mini S&P 500 future:** multiplier $50. At an index level of 5,200, one contract controls 5,200 × $50 = $260,000.
**Crude oil future (NYMEX WTI):** 1,000 barrels. At $75 a barrel, one contract controls $75,000.
**Gold future (COMEX):** 100 troy ounces. At $2,400 an ounce, one contract controls $240,000.
**US stock option:** 100 shares. An option quoted at $2.50 costs $2.50 × 100 = $250.

That last point confuses many beginners: an option price shown as $2.50 is per share, so one contract costs $250 plus fees.

## Why contract size matters for risk

Because one contract can be large, a small price move can create a large gain or loss. You must translate your risk plan into contracts, not into dollars of margin.

**Example: From stop distance to number of contracts**
You trade the Micro E-mini S&P 500, multiplier $5. Your stop is 20 points from your entry. Risk per contract is 20 × $5 = $100. If your plan allows $300 of risk per trade, you can trade 3 contracts. With the full size E-mini at $50, the same stop risks $1,000 per contract, so even one contract exceeds the plan.

This is why exchanges list **micro** and **mini** versions of popular contracts: they let smaller accounts size positions sensibly. See [Position Sizing](https://learn.tradelabsai.com/risk/position-sizing/) and [Tick Size and Tick Value](https://learn.tradelabsai.com/futures/tick-size-and-tick-value/).

## Contracts in other markets

- **Forex:** positions are sized in lots. A standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000. See [Lots: Standard, Mini and Micro](https://learn.tradelabsai.com/forex/lots-standard-mini-and-micro/).
- **CFDs:** usually sized in units of the underlying, such as shares or ounces, set by the broker.
- **Crypto perpetual futures:** contract sizes vary by exchange; some quote in coins, others in dollars.
- **Prediction markets:** you trade shares that each pay $1 if an outcome happens, so the "contract" is one share.

## Open interest and volume in contracts

For futures and options, activity is measured in contracts. **Volume** is how many contracts traded in a period, and **open interest** is how many contracts remain open. Both help judge liquidity and participation. See [Volume](https://learn.tradelabsai.com/markets/volume/) and [Open Interest](https://learn.tradelabsai.com/markets/open-interest/).

## Common mistakes

- **Confusing margin with exposure.** A $1,500 margin requirement does not mean you are risking $1,500; you are controlling the full contract value.
- **Forgetting the option multiplier** and buying ten contracts thinking each costs the quoted price.
- **Sizing by "one contract" by default.** Size from your stop and multiplier, and use micro contracts when one full contract is too large.

## Frequently asked questions

### How many shares is one option contract?

Standard US stock and ETF options cover 100 shares per contract, though adjustments after corporate events can change this for specific contracts.

### What does contract multiplier mean?

It is the number that converts the quoted price into the money value of one contract, for example $50 per index point for the E-mini S&P 500.

### Can I trade less than one futures contract?

Not on a futures exchange, but many contracts have mini and micro versions that are a fraction of the size, and some brokers offer CFDs or ETFs for smaller exposure.

## Sources

- Wikipedia, [Futures contract](https://en.wikipedia.org/wiki/Futures_contract)
- U.S. Securities and Exchange Commission, [Options](https://www.investor.gov/introduction-investing/investing-basics/glossary/options)

## Continue learning

- Next lesson: [What Are Commodities?](https://learn.tradelabsai.com/markets/what-are-commodities/)
- Previous lesson: [What Is a CFD?](https://learn.tradelabsai.com/markets/what-is-a-cfd/)
- Related: [What Is a CFD?](https://learn.tradelabsai.com/markets/what-is-a-cfd/): A CFD lets you trade price moves without owning the asset. Learn how contracts for difference work, margin, overnight costs, where they are legal and the risks.
- Related: [Contract Specifications](https://learn.tradelabsai.com/futures/contract-specifications/): Contract specifications define a futures contract's size, tick, months, hours and settlement. Learn every field, with examples for E-mini S&P, crude oil and gold.
- Related: [What Is a Future?](https://learn.tradelabsai.com/markets/what-is-a-future/): A futures contract is an agreement to buy or sell something at a set price on a future date. Learn how futures work, margin, leverage, settlement and who uses them.
- Related: [What Is an Option?](https://learn.tradelabsai.com/markets/what-is-an-option/): An option is the right, not the obligation, to buy or sell at a set price before a set date. Learn calls, puts, premiums, strikes and how options gain or lose value.
- Related: [Tick Size and Tick Value](https://learn.tradelabsai.com/futures/tick-size-and-tick-value/): Tick size is a future's smallest price move; tick value is what it is worth per contract. Learn to calculate P&L, risk per trade and position size from ticks.
- Related: [Position Sizing](https://learn.tradelabsai.com/risk/position-sizing/): Position sizing decides how many shares or contracts to trade so each loss stays small. Learn the formula, worked examples for each market and common mistakes.