Main Contract
The main contract refers to the contract with the largest trading volume and highest liquidity in the futures exchange. The price fluctuations of the main contract have a significant impact on the market and are usually regarded as an indicator of the futures market.
Definition: The main contract refers to the contract with the largest trading volume and highest liquidity in the futures exchange. Due to its high liquidity and large trading volume, the price fluctuations of the main contract have a significant impact on the market and are usually regarded as the weather vane of the futures market.
Origin: The concept of the main contract gradually formed with the development of the futures market. In the early futures market, traders found that certain contracts had much higher trading volumes and liquidity than other contracts, and the price fluctuations of these contracts also had a more significant impact on the market. Therefore, traders began to refer to these contracts as the “main contracts.”
Categories and Characteristics: The main contracts are usually divided into the following categories:
- Commodity Futures Main Contracts: Such as futures contracts for crude oil, gold, copper, and other bulk commodities. These contracts usually have high trading volumes and liquidity, and their price fluctuations have a significant impact on the related commodity markets.
- Financial Futures Main Contracts: Such as futures contracts for stock indices, treasury bonds, and other financial products. The price fluctuations of these contracts have a significant impact on the financial markets.
Specific Cases:
- Crude Oil Futures Main Contract: On the New York Mercantile Exchange (NYMEX), the main contract for crude oil futures is usually the nearest month's contract. As crude oil is one of the most important energy commodities globally, its futures price fluctuations have a significant impact on the global economy. For example, in April 2020, the price of the main crude oil futures contract once fell to negative values, shocking the global market.
- Stock Index Futures Main Contract: On the Chicago Mercantile Exchange (CME), the main contract for the S&P 500 index futures is usually the nearest month's contract. The price fluctuations of the S&P 500 index futures are widely regarded as the weather vane of the U.S. stock market. For example, in March 2020, affected by the COVID-19 pandemic, the price of the main S&P 500 index futures contract plummeted, reflecting market panic.
Common Questions:
- Why do the price fluctuations of the main contract have a significant impact on the market? The high liquidity and large trading volume of the main contract allow its price fluctuations to quickly reflect market sentiment and expectations, thus having a significant impact on the market.
- How to identify the main contract? Usually, exchanges will publish data on the trading volume and open interest of each contract. The contract with the largest trading volume and open interest is the main contract.
