What Does a Job Lot Mean?
In economics, a “job lot” is a futures contract for a commodity that has a smaller denomination than the usual lot for that commodity. For example, 1,000 barrels are the usual lot for a crude oil futures transaction. A “job lot” would be any crude oil futures deal worth less than 1,000 barrels.
When someone works in manufacturing, they use the term “job lot” to refer to unique jobs that usually can’t be done.
How do job lots work?
The commodity futures markets of today are a significant and essential part of the world’s financial markets. Producers can get the essential goods they need through them, and financial buyers can bet on the prices of goods and manage their risks through hedges. Using standard contracts on commodity markets is a vital part of this scheme. This makes the trading method a lot easier to use and lets a lot of deals happen quickly.
But for smaller businesses and buyers, the usual contract amounts for commodity futures can be too significant to handle. One example is the futures contract for soybeans on the Chicago Mercantile Exchange (CME), which is equal to about 136 metric tons of soybeans. If the buyer is small and plans to take delivery in person when the contract ends, they might not need that much stock. In the same way, a trader with limited funds might not want to bet on soybean futures if they could have to take delivery of such a large amount of soybeans.
Commodities exchanges sometimes let smaller order amounts go through so that they can serve these smaller market parties. These “job lot” futures contracts let you trade smaller amounts, like 100 barrels of oil instead of the usual 1,000. Job lots help make the futures market more open by letting smaller buyers join. This makes it easier for all traders to take advantage of quick trades and pretty straightforward prices.
A Job Lot in the Real World
Standardized futures contracts trade on a futures market. The buyer and seller agree to deliver a commodity less than a commodity futures contract usually allows. This is called a “job lot” futures contract.
Many people buy and sell commodities futures contracts, like gold and silver, which are valuable metals. A commodities market could offer silver futures contracts that are worth 5 ounces each. It would be a lot of work if the exchange agreed to make a commodity futures deal with a buyer who bought less than 5 ounces.
Conclusion
- When you buy a futures contract, a job lot is worth less than a standard lot.
- It can also mean a job that isn’t typical of what a maker does.
- In the commodities futures market, job openings make it easier for smaller buyers to join, which makes the market more flexible for everyone.
