9FOr Beginners Only
approaching expiration (frequently first notice day—see item 10). Daily price limits can change 
frequently, so traders should consult the exchange on which their products trade to ensure they 
are aware of current thresholds.
 9. Settlement type. Markets are designated either as physically deliverable or cash settled. in 
Table 1.1, the e-mini s&P 500 futures are cash settled, while all the other markets can be physi-
cally delivered.
 10. First notice day. This is the first day on which a long can receive a delivery notice. First notice 
day presents no problem for shorts, since they are not obligated to issue a notice until after the 
last trading day. Furthermore, in some markets, first notice day occurs after last trading day, 
presenting no problem to the long either, since all remaining longs at that point presumably 
wish to take delivery. However, in markets in which first notice day precedes last trading day, 
longs who do not wish to take delivery should be sure to offset their positions in time to avoid 
receiving a delivery notice. (Brokerage firms routinely supply their clients with a list of these 
important dates.) 
although longs can pass on an undesired delivery notice by liquidating their 
position, this transaction will incur extra transaction costs and should be avoided. Last notice 
day is the final day a long can receive a delivery notice.
 11. last trading day. This is the last day on which positions can be offset before delivery becomes 
obligatory for shorts and the acceptance of delivery obligatory for longs. as indicated previously, 
the vast majority of traders will liquidate their positions before this day.
 12. Deliverable grade. This is the specific quality and type of the underlying commodity or finan-
cial instrument that is acceptable for delivery.
 ■ Volume and Open Interest
V olume is the total number of contracts traded on a given day. V olume figures are available for each 
traded month in a market, but most traders focus on the total volume of all traded months.
Open interest is the total number of outstanding long contracts, or equivalently, the total number 
of outstanding short contracts—in futures, the two are always the same. When a new contract begins 
trading (typically about 12 to 18 months before its expiration date), its open interest is equal to zero. 
if a buy order and sell order are matched, then the open interest increases to 1. Basically, open interest 
increases when a new buyer purchases from a new seller and decreases when an existing long sells to 
an existing short. The open interest will remain unchanged if a new buyer purchases from an existing 
long or a new seller sells to an existing short.
V olume and open interest are very useful as indicators of a market’s liquidity. 
not all listed futures mar-
kets are actively traded. some are virtually dormant, while others are borderline cases in terms of trading 
activity. illiquid markets should be avoided, because the lack of an adequate order flow will mean that the 
trader will often have to accept very poor trade execution prices if he wants to get in or out of a position.
generally speaking, markets with open interest levels below 5,000 contracts, or average daily 
volume levels below 1,000 contracts, should be avoided, or at least approached very cautiously. 
new markets will usually exhibit volume and open interest figures below these levels during their