Contract specifications

Definition

Contract specifications are the exchange-published parameters that define a standardized derivative: what one contract represents (multiplier/size), the minimum price increment (tick) and its dollar value, listed months/expirations, settlement method, exercise style, trading hours, and position limits. Specs are the ground truth that turns a quoted price into dollars of exposure and P&L.

How it works / structure

• Multiplier / contract size: US equity options control 100 shares per contract; index futures carry an index-point multiplier (e.g. E-mini S&P 500 = $50 × index per CME’s published spec); commodity contracts specify physical quantity per contract.
• Tick size and value: the minimum increment times the multiplier = dollars per tick; P&L per contract = price change in ticks × tick value.
• Notional exposure: price × multiplier — the number sizing must reason from (risk-fixed-fractional), since margin is only a fraction of it.
• Settlement & style: physical vs cash settlement; American vs European exercise for options; final-settlement price methodology.
• Adjustments: equity option specs change when corporate actions hit the underlying (ms-corporate-actions) — adjusted contracts carry non-standard deliverables.
• Simulation parameters: every spec field above is a direct engine input; the platform’s instrument records mirror the exchange spec sheet.

When it applies

Before any derivative position is sized, simulated, or graded: notional, tick value, and settlement style are per-product facts that cannot be assumed across products (two contracts on the same underlying — e.g. standard and micro futures — differ only in spec, and by 10x in exposure).

Risk profile & failure modes

• Multiplier errors: the classic sizing accident — confusing micro and standard contracts, or forgetting the 100-share option multiplier, mis-sizes exposure by an order of magnitude.
• Adjusted-option traps: post-corporate-action contracts with non-standard deliverables trade at prices that look mispriced against the regular chain and are not.
• Hour mismatches: nearly-24-hour futures sessions vs equity hours create hedging gaps for cross-instrument positions.
• Spec changes: exchanges amend specs (tick sizes, hours, limits); historical simulations must use period-correct specs.

Evidence & limits

Specifications are exchange publications — authoritative by definition, empirical only in the sense that they change over time. The platform treats the exchange’s current published spec sheet as the source of truth and records the retrieval date.

Falsifiable-thesis examples

Illustrations only, not signals:

• “One E-mini contract at index level L carries notional within 1% of $50 × L” — falsified by the published spec differing.
• “Contract X’s tick value will remain unchanged through the strategy’s evaluation window” — falsified by an exchange spec amendment in the window.

Cross-references

• Instruments defined by specs: instrument-option-contract, instrument-futures-contract, instrument-futures-option
• Interacting mechanics: ms-futures-margin, ms-futures-roll, ms-settlement, ms-corporate-actions
• Sizing: risk-fixed-fractional, risk-correlation-exposure