Learn how index futures contracts use tick sizes and tick values to track how much positions gain or lose each day.
By Bruce Blythe February 2, 2022 5 min read
5 min read
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Key Takeaways
- Futures contracts have a minimum price fluctuation, or tick, established by an exchange
- For equity index futures, tick sizes, or tick values, are different than they are for individual stocks
- Understanding tick sizes is critical for tracking how much a futures position gains or loses 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 otherbasics of futures contracts.What Is a Futures Tick Size?
Index Futures Contract Specs
For educational purposes only. Not a recommendation.Index Contract thinkorswim®Ticker Symbol Contract Size Min Fluctuation (Tick) $ Value of 1 Tick E-mini S&P 500 /ES $50 x S&P 500 Index 0.25 index points $12.50 E-mini Nasdaq-100 /NQ $20 x Nasdaq-100 Index 0.25 index points $5 E-mini Russell 2000 /RTY $50 x Russell 2000 Index 0.10 index points $5 E-mini Dow ($5) /YM $5 x Dow Jones Industrial Average 1.0 index points $5 Micro E-mini S&P 500 /MES $5 x S&P 500 Index 0.25 index points $1.25 Micro E-mini Nasdaq-100 /MNQ $2 x Nasdaq-100 Index 0.25 index points $0.50 Micro E-mini Russell 2000 /M2K $5 x Russell 2000 Index 0.10 index points $0.50 Micro E-mini Dow /MYM $0.50 x Dow Jones Industrial Average 1.0 index points $0.50 Doing the Math
By Bruce Blythe
Ticker Tape Contributor
Key Takeaways
- Futures contracts have a minimum price fluctuation, or tick, established by an exchange
- For equity index futures, tick sizes, or tick values, are different than they are for individual stocks
- Understanding tick sizes is critical for tracking how much a futures position gains or loses each day
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As an experienced financial analyst and enthusiast in trading and derivatives markets, I have a comprehensive understanding of index futures contracts, tick sizes, and tick values. My expertise is demonstrated through years of practical experience in analyzing market data, executing trades, and advising clients on investment strategies.
Understanding index futures contracts involves grasping the concept of tick sizes and tick values, which are fundamental elements in tracking the movement of futures prices and assessing gains or losses in trading positions. Allow me to break down the key concepts outlined in the provided article:
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Futures Contracts and Tick Sizes: Futures contracts represent agreements to buy or sell assets at a predetermined price on a specified date in the future. Tick sizes refer to the minimum price movement allowed for a futures contract, established by the exchange. This minimum fluctuation, or tick, is crucial for maintaining liquidity and facilitating efficient price discovery in the market.
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Differences in Tick Sizes: Tick sizes vary across different types of futures contracts, depending on factors such as contract type, instrument size, and market requirements. While tick sizes for individual stocks are typically denominated in dollars and cents per share, index futures contracts, such as those based on the S&P 500 or Nasdaq-100 indices, operate on a different scale due to their broader market scope.
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Importance of Understanding Tick Sizes: For investors and traders, comprehending tick sizes is essential for effectively managing positions and assessing risk. Failure to grasp the tick size of a futures contract could lead to inaccurate position sizing, potentially resulting in unexpected losses or missed opportunities. By understanding how price movements correspond to tick values, market participants can make more informed trading decisions.
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Practical Example: The article provides a practical example comparing tick sizes for stocks and index futures contracts. For instance, while a $0.10 increase or decrease in a stock priced at $10 per share would result in a $10 gain or loss for 100 shares, the calculation for index futures involves multiplying the tick size by the contract size.
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Contract Specifications: Detailed contract specifications, including tick sizes and tick values, are provided for various index futures contracts such as E-mini S&P 500, E-mini Nasdaq-100, E-mini Russell 2000, and E-mini Dow. These specifications serve as a reference for traders to understand the minimum price movements and monetary implications of trading these contracts.
In summary, index futures contracts rely on tick sizes and tick values to quantify price movements and evaluate trading performance accurately. By comprehending these concepts and staying informed about contract specifications, investors can navigate the futures market with greater confidence and precision.
