Learn how index futures contracts use tick sizes and tick values to track how much positions gain or lose each day.
Like a scorecard at a baseball game, tick sizes are a fundamental scorekeeping mechanism for trading the markets. They help us track how much prices go up or down on a given day, revealing how much money we made or lost.
For stocks, tick sizes are fairly straightforward—basically, it’s dollars and cents times the number of shares. But for stock index futures based on the S&P 500 Index (SPX) and other benchmarks, it’s a different sort of game.
Futures contracts have a minimum price fluctuation, also known as a “tick”. Tick sizes are among the “contract specifications” set by futures exchanges, such as the Chicago-based CME Group, and are calibrated to encourage efficient, liquid markets through “tight” bid/ask spreads. But futures tick sizes are not all the same. They vary depending on the type of contract, size of financial instrument, and requirements of the marketplace.
Why should the typical investor try to understand tick sizes and tick values in futures market? As with stocks or other assets, it’s critical to keep close tabs on how much an investment or position gains or loses over the course of an hour, a day, or other time period. If you’re not familiar with a contract’s tick size, you may be at risk of putting on a position that’s too large or too small. It might also be hard to measure your trading results. “You’ll want to familiarize yourself with the minimum price fluctuation—the tick size—for whatever futures contracts you plan to trade,” according to the National Futures Association (NFA) website. “You’ll also need to know how a price change of any given amount will affect the value of the contract.”
For example, CME Group’s E-mini S&P 500 futures, which are one-fifth the size of the exchange’s standard S&P 500 futures contract, are widely used by traders and other market professionals to speculate on the broader equity market or hedge against adverse movements in a portfolio of stocks.
E-mini S&P 500 futures (/ES) are the most actively traded U.S. equity index futures contract, with more than 1.5 million contracts changing hands on average each day during the first seven months of 2019, according to CME Group’s exchange data. Other CME Group e-mini futures include contracts based on the Nasdaq-100 Index (NDX), Dow Jones Industrial Average ($DJI), and the Russell 2000 Index (RUT).
Here’s an example of how tick sizes are a different sort of animal versus stocks. Say, you hold 100 shares of a stock trading at $10 per share, with a total position value of $1,000. In this case, an increase or decrease of $0.10 calculates out to $0.10 x 100, or a gain or loss of $10. Pretty simple math.
For E-mini S&P 500 futures, the contract size is $50 times the index value. So, for example, if the S&P 500 Index is at 2900, the contract value is $145,000. The minimum tick is one-quarter of an index point, or $12.50 per contract.
If E-mini S&P 500 futures rise or fall, say, 30 points (about 1%), that translates into a gain or loss of $1,500 (30 points/0.25 minimum tick = 120 ticks; 120 x $12.50 = $1,500).
Tick sizes and values are also different for CME Group’s Micro E-mini equity index futures (/MES), which the exchange launched in May 2019 and are one-tenth the size of CME Group’s e-mini equity index futures contracts. For beginner futures traders who just want to “test the waters,” micros mean risking less money by trading a slice of the equity index e-mini products.
For Micro E-mini S&P 500 futures, the minimum tick or price fluctuation is also 0.25 index point, or $1.25 per contract (one-tenth of the $12.50 per contract of the /ES). The value of one contract is calculated by multiplying the current level of the index by $5.
So if the index moves 30 points, or 1%, that translates into a gain or loss of $150 (30 points/0.25 minimum tick = 120 ticks; 120 x $1.25 = $150).
Other micro contracts include E-mini Nasdaq-100 futures, E-mini Dow futures, and E-mini Russell 2000 futures. If you’re trading stock index futures, it can be confusing to track all the different contract and tick sizes. That’s why it might help to keep a table handy with the contract specifications (like the one above).
Ready for more? Learn more about tick sizes and other basics of futures contracts.
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