• What is your instrument’s ticker symbol?
  • WTI crude: CL (sometimes with expiration month appended)
  • Apple stock: AAPL
• What exchange(s) is it traded on?
  • CL: electronic trading is on CME’s GLOBEX platform.  Open outcry pit trading is at NYMEX in New York.  GLOBEX and pit trades are for the same product.
  • AAPL: The primary exchange is the NASDAQ electronic exchange.  In addition the stock is traded on numerous other electronic exchanges – Island, Direct Edge, NYSE Arca etc.
• What type of instrument is it?
  • CL: a commodity future
  • AAPL: common stock
• What does one unit of the instrument represent?
  • CL: It is a contract for the delivery of 1000 barrels of light, sweet crude oil in Cushing, Texas on a specific date. In practice, most contracts are closed before delivery, so it operates more like a cash settled future.
  • APPL: one voting share of common stock.  There are roughly 930 million shares outstanding that collectively represent ownership of Apple, Inc.
• What are the trading hours?  What hours are most active?
  • CL: On GLOBEX, 25/5 except for a 45 minute exchange maintnance window each day at 5:15 EST. NYMEX open outcry trading is 5 days a week, 9:00 AM to 2:30 PM EST. Volume is highest in the morning, 9:00AM to 11:00AM or so EST.
  • AAPL: regular trading during US stock market hours – 9:30AM to 4:00PM EST. Volume is highest during the first and last hours of regular trading. Extended trading is available from 7:00AM to 8:00PM on Island. Volume is light and spreads are wide during extended trading except during earnings announcements.
• What are the pricing units?
  • CL: Dollars and cents per barrel (so a price of $45.50 means one contract is $45,500 of value)
  • AAPL: Dollars and cents per one share.
• What is the minimum trading tick and how much money does that represent?
  • CL: $0.01 per barrel, which represents $10 per contract.
  • AAPL: $0.01 per share.
• What are the margin rules around this instrument?
  • CL: CME sets margin requirements and they change over time.  Right now you to put up $7,560 per contract to open the position.  Updated requirements can be found at the CME website.
  • AAPL: Standard US stock margin requirements – 1/2 the stock price for overnight positions.
• What are the contract terms and expiration? What about rollover? (for derivatives only)
  • CL: It’s complicated – read this.  In general active trading occurs in the next-to-front month, and rolls forward.  The front month is specifically for delivery/settlements and conventional brokers (ones that can’t take delivery of oil) won’t let you trade it once expiration gets too close.
  • AAPL: N/A (not a derivative)
• What is a “typical” bid-offer spread during regular trading hours?
  • CL: one to two ticks during open outcry hours.
  • AAPL: one to four ticks during normal market hours.
• What is your cost to trade the instrument?
  • CL: My broker charges 2.01 per contract to trade US futures.
  • AAPL: $0.005 per share (minimum $1)
• What is the most recent closing price?
  • CL: ~$101 per barrel (1/10/2012)
  • AAPL: $423.24 (1/10/2012)
• What is the price range over the last year?  The last decade?  The history of the instrument?
  • CL: Max prices were about $150/barrel in 2008.  Minimum price was about $35, also, also in 2008.  Range over the last year was about $75 to $115.
  • AAPL: Price has climbed fairly steadily over the last decade from about $10 to $400 per share.  During the housing crisis AAPL retraced from $200 to $100.
• What is the typical daily trading range?
  • CL: about 3%
  • AAPL: about 2%
• Does the instrument pay a dividend or yield?  If so, what?
  • CL: No dividend/yield, but like all futures pricing is adjusted by the risk-free rate of return.
  • AAPL: Apple pays no dividends, and has indicated they do not intend to do so in the future.
• What is typical daily trading volume?
  • CL: typically > 500,000 contracts per day in the front 4-5 months worth of contracts.
  • AAPL: 11 million shares per day.
• Are there derivatives related to the product?  What kind?  Are they actively traded?Where are they traded?
  • CL: there are actively traded options on CL listed on GLOBEX/NYMEX.
  • AAPL: There is a very active options chain traded on CBOE.  There are also single stock futures on OneChicago, but they’re not very popular and serve little purpose that I can see.
• Does the product have price limits?  If so, what are they?
  • CL: a $10 price fluctuation from opening price causes a 5 minute trading halt.
  • AAPL: participates in the standard stock “circuit breaker” rules
• Is this product actively arbitraged against any others?
  • CL: It is a near perfect arbitrage for the ICE exchange WTI crude contract and GLOBEX mini-crude contract.  In addition it can be quasi-arbitraged against the other spot and futures crude prices by firms with shipping capability.
  • AAPL: Other than the not-very-active single stock future, there are no equivilent products.  Arbitrage between digital exchanges might occasionally but rarely be possible.
• What about spread trading?  Are there spreads of interest?
  • CL:  WTI crude is actively spread against other future and spot oil prices (Brent, Dubai etc.).  It is also spread against RBOB Gasoline, diesel and heating oil.
  • AAPL: Apple represents a large porition of the NASDAQ index, thus making various AAPL/NASDAQ spreads interesting.  AAPL might also be spread against other tech companies or used more broadly for stock pairs trading.
• Are there economic announcements specific to this product?  When do they occur?
  • CL: Crude inventories are released every Wednesday at 10:30 EST.
  • AAPL: reports are released quarterly.  Dates can be found via Apple’s investor website or via other release calendars.
• What are the best real-time news sources for this instrument?
  • CL: Bloomberg professional is the best, but if you don’t want to pay for it, Interactive Brokers has some useful news feeds.  Standard 24 hour TV news (CNN etc.)  is also useful since oil prices tend to move with geopolotical events.
  • AAPL: Bloomberg.  Since Apple has a major following, twitter can also be useful for breaking info.
• Who are the major players in this instrument?
  • CL: Major producers and consumers of oil – Exxon, airlines, etc.
  • AAPL: about 70% of shares are held by institutional funds – pensions, mutual funds, hedge funds etc.
• Are there any “key prices” for this instrument where the behavior of suppliers or consumers is expected to change?
  • CL: OPEC target price is $75 per barrel, but several OPEC countries have commented they want to see more like $100 per barrel to achieve political stability at home.  Prices >$100 per barrel are considers to cause economic slowdown in the US.  Prices have mostly moved in the $75 yo $100 range in 2011.
  • AAPL: none I can think of
• What is the central web resource for information about the instrument?
  • CL: CME group website
  • AAPL: Apple investor relations

As you can see, there’s a lot of information here.  No one ever said this would be easy.  But you owe it to yourself to know at least this level of background information about an instrument.  Of course none of this actually tells you what trades to take – that’s a matter of trading system development.  This is just background you need to know to avoid making silly mistakes.