Warrior Trading Blog

Understanding Tick Sizes and Tick Values in the Futures Markets

futures markets

Futures markets are one of the most popular places for day traders and speculators to get involved in. For one, futures contracts can be traded anytime in the day as opposed to trading stocks on exchanges that open and close at certain times. This way, people don’t need to worry about their time zones, as the futures markets are open 24 hours a day.

At the same time, day trading futures doesn’t require the $25,000 minimum account size that regular day traders need to deal with. As such, it’s not surprising that many people jump on futures markets as a way to make money, but at the same time, they need to understand there are some things different from regular markets. For futures, one big concept is the idea of tick sizes and tick values.

Background

Years ago, before the advent of electronic trading, people on the floor on the New York Stock Exchange would buy and sell stocks in person. But unlike today where stock prices can fluctuate by even a few cents, back then stock prices would move by 1/8th and 1/16th divisions of a dollar– $0.125 and $0.0625 respectively – per share.

This was the smallest amount that a stock could move by, called a tick, and many traders made their livings scalping the difference between these stock prices. While traders and brokers could make a living much more easily than today’s scalpers, when this changed to today’s system where stock prices move in $0.01 minimum increments, those same traders ended up changing their strategy.

Tick Size and Tick Value

This difference between two price points, the small price movement or gap between a bid and offer price, is what’s known as the tick size. While it’s not such a big deal in the equity markets anymore, it still plays a massive role in the futures markets as tick sizes vary drastically between different contracts. On the other hand, the tick value of a future contract refers to how much money is lost or gained per contract per tick move.

In this way, future traders can quickly multiply their number of contracts with the tick value of that particular commodity to see how much they gain or lose for each tick movement. If a contract has a tick value of $12.5 and a trader buys 10 contracts, it’s easy to see that the trader could gain or lose $125 for every tick movement. If that commodity fluctuates on average around 100 ticks a day, that means the trader could lose or gain up to $12,500 a day.

It’s also important to know this because not keeping this in mind could result in a trader taking positions far to large and outside their risk range. Even relative to other future contracts, knowing how many ticks a particular futures market moves a day. Both E-Mini S&P 500 and crude oil futures have almost the same tick value, but the later has almost twice the daily tick volatility, so potential loses could be significant if a trader isn’t paying attention.

Various Markets

Tick sizes and value differ significantly amongst the various different markets. The most popular agricultural commodities like Corn (C) and Soybeans (S) have a ¼ cent per bushel tick size and a tick value of $12.5 per contract.

Others, such as Sugar #11 (SB), trade at $0.0001 per pound, worth $11.20 in tick value per contract.

Currency-based futures all vary, with popular ones such as the British Pound (BP) and the Euro (EC) having $0.0001 BP/Euro tick sizes with both having $6.25 tick values per contract. Various treasury note futures are also popular, with the 10-Year T-Note having a one half of a 1/32 of a point tick size, which works out to $15.625 per contract.

Livestock, such as Pork Bellies (PB), Lean Hogs (LH) and Live Cattle (LC) all have 40,000-pound trading units. Hogs and Pork both have tick sizes of 2.5 cents/cwt with $10 tick values, while Cattle works on a $0.01 per pound tick size worth $4 per contract.

Precious metals futures are mostly sold per pound or per ounce. Gold (GC) works on a $0.10 per ounce tick size and a $10 per contract tick value. Platinum has the same tick size while Palladium has as $0.05 tick size, but both the sister metals have $5 per contract tick values.

This brings us to some of the most popular futures contracts, those based on financials such as the major indexes. The S&P 500 E-mini (ES) contracts have a tick size of 0.01 index points or $0.50 in tick value. The Nasdaq 100 (ND) is largely, with a 0.5 index point tick value and a $50 tick value.

In terms of liquidity, the most commonly traded futures are the E-Mini S&P 500, the 10-Year Treasury Note, Crude Oil WTL (CL) and the Eurodollar (ED). The least traded include Coffee (KC), Live Cattle, High-Grade Copper (HG), and Corn.

While these various markets all differ in terms of these metrics, traders can make money in almost any futures market if they manage their risk properly. Keeping the tick sizes and values in mind is just one of the many things commodities traders need to keep in mind when trading these markets.

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