How Do Standardized Derivatives Contracts Facilitate Order Book Trading?

Standardized contracts have pre-defined terms such as expiration date, contract size, and underlying asset specifications. This uniformity makes them fungible and easily tradable, which is essential for the high-volume, automated matching of an order book.

Without standardization, every trade would require bilateral negotiation, rendering the order book model inefficient and impractical. Standardization lowers transaction costs and increases market access.