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  • What I would expect to see is the price of contract quoted: $$p = \frac{F-E(S)}{k}$$ where $F$ is the settlement price, $E(S)$ is the expectation for the price at expiry (often assumed to be just = to current spot) and $k$ is the discount factor.
  • However looking at CME (GBPUSD FX and Corn Futures) both seem to be quoted in settlement price rather than contract price.
  • For options, as I would expect I am seeing contract price quotes (or calls); so why are futures quoted differently?
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Separating the quoting convention of an instrument from its economic value is quite common in finance, as it allows easy comparisons between instruments (even across asset classes). Some examples are

  • Bonds quoted as yield
  • Interest rate swaps quoted as par rate
  • Credit default swaps quoted as par spread
  • Options quoted as implied volatility
  • FX forwards quoted as forward points

And as you have noticed, futures are quoted as the strike which would give the contract zero present value. This has several advantages,

  1. The P&L is still easily computed as $PV\times(F_{t+1}-F_t)$, where PV is the point value
  2. Looking at the term structure of futures prices immediately tells you whether the market is in contango or backwardation
  3. It allows an easy comparison with the spot price (so if you know your cost of carry, you can tell whether a spot vs futures transaction will be profitable)
  4. It works well with the way that futures P&L is settled - each day your P&L is added to or removed from your margin account, so in effect you are entering a new futures contract each day, with the strike reset at the settlement price.

Note that since futures are settled daily (unlike forwards which are settled at maturity) the fair value of the contract is just $E(S)-F$, with no discounting like there is for a forward.

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The way I find helpful to think about this is that exchanges are mechanisms of information discovery (the quote that is formed signals agreement between the two parties). In a futures exchange (which I believe is primary only) the key information that is being discovered is (... drumroll ...) future (...) price of a particular commodity / financial instrument. In a bond market (primary, OTC) the goal for the parties is to agree upon yield-to-maturity; hence we see them being quoted (quotes for different 10-yr treasuries are common).

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