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What is a futures tick size and tick value?

Futures Tick Size:

The tick size of a Futures contract refers to the smallest increment by which the price of the contract can move. It's essentially the minimum price fluctuation allowed in trading that particular futures contract. For example:

  • For the E-mini S&P 500 futures, the tick size is 0.25 index points.
  • For gold futures on the COMEX, the tick size might be $0.10 per troy ounce.

Futures Tick Value:

The tick value is the monetary value of each tick movement. This is calculated by multiplying the tick size by the contract's multiplier or point value. Here's how you can understand this:

  • If the E-mini S&P 500 futures have a tick size of 0.25 points and each point is worth $50, then one tick movement equals $12.50 (0.25 * $50).
  • For gold futures, if the tick size is $0.10 and each contract represents 100 troy ounces, one tick movement would be $10 (0.10 * 100).

Understanding both tick size and tick value is crucial for traders as it directly impacts the profit or loss from trading futures. 

Imagine you're trading S&P 500 E-mini futures:
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  • Contract value: $200,000
  • Initial margin: $20,000 (10%)
  • Maintenance margin: $16,000 (80% of IM)

Scenario 1: Market Moves in Your Favor (Profit)

If the contract price rises and your unrealized profit is $5,000:
Your account balance increases to $25,000
No margin call is needed

Scenario 2: Market Moves Against You (Loss)

If the contract price drops and you lose $6,000:
Your account balance falls to $14,000, below the $16,000 maintenance margin.
A margin call is triggered, requiring a $6,000 deposit to bring the balance back to $20,000 (initial margin level).

This knowledge helps in assessing the risk and potential reward of trading futures contracts. Remember, these values can change based on the exchange or the specific contract, so always check the most current specifications for the futures you're interested in trading.
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