Futures Markets – Ticks and Monetary Tick Values Explained

Don Dawson

A term that trips up a lot of Futures traders Pro and Novice alike is Ticks and Monetary Tick Values. A tick is the minimum amount a price can change for that market. The Stock market trades in minimum tick increments of .01 (one cent) per share unless a market maker trades between the bid and ask, then the minimum tick could be smaller. However, in the Futures markets there are no market makers (can I hear a hooray?), so the minimum tick is just that, “always” the minimum tick as long as the order is traded on the electronic platform.

The difference is that each Futures contract has a different minimum tick increment. And since each market has a different tick increment then the monetary value of each of these ticks will be different as well. Table 1 illustrates some market examples with minimum ticks and tick values.

Table 1 Table 1

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The best way to find a minimum tick value for a Futures contract is to go to the contract specifications page of the Exchange website where the product trades at. For example, the 30 Year Bond (US) trades on the CMEGroup Exchange. Go to www.cmegroup.com and locate the product on the home page then find the contracts specification tab. Once there the minimum tick is identified for you. If a trader wants contract specifications for Sugar they should visit www.theice.com. All traders should be familiar with the Exchange websites that the products they choose to trade are actually traded on.

There is plenty of other useful information on the contract specification page. One of them that we are going to address more in this article is contract size or point value.

Have you ever wondered where the monetary value for each tick comes from in a Futures contract?

From Table 1 you can see the differences in monetary tick values yet sometimes the minimum tick can be the same as another market with a different monetary tick value, such as Crude Oil and Sugar which have the same minimum tick increment, but completely different monetary tick values.

Futures trade in contract sizes or point values. Table 2 illustrates some examples.

Table 2Table 2

When you read a price quote (last price) that is on your chart, order platform, in a newspaper etc. you are reading a unit price for that product. Crude Oil is priced in dollars and cents per barrel, Grains are priced in cents per bushel, Sugar is priced in cents per pound etc. A Futures contract is made up of multiples of these units. If the Futures contract does not trade in units then the Exchange assigns a point value to that contract. The Stock Index and Interest Rate Futures use Point values instead of contract size.

Knowing the contract size or points and minimum tick value can help you identify what the monetary tick value is for the product you are trading. Table 3 will illustrate some of the markets you may be trading already.

Table 3Table 3

To find the monetary tick value for any Futures contract you can use the following formulas:

Stock Indexes and Interest Rates

Points X Minimum Tick = Monetary Tick Value

All Other Markets

Contract Size X Minimum Tick = Monetary Tick Value

It is of the utmost importance that a trader knows and understands the product that he is trading.

“Never be bullied into silence. Never allow yourself to be made a victim. Accept no one’s definition of your life: define yourself.” Harvey Fierstein

– Don Dawson

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.