Futures
February 29, 2024 Advanced
Index futures contracts use ticks to track the daily performance of a position. Traders also use futures contracts ticks to limit risk and raise profits.
Like a scorecard at a baseball game, tick sizes are a fundamental scorekeeping mechanism for trading the markets. They help us track price fluctuations 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 multiplied by 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.
What is a futures tick size?
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 aren't all the same. They vary depending on the type of contract, exchange, size of financial instrument, and requirements of the marketplace.
Why should a typical investor try to understand tick sizes and tick values in the 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 entering a position that's too large or too small. It might also be hard to measure your trading results. You also want to make sure you understand how a price change of any given amount will affect the contract's value.
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 an average of more than 1.7 million contracts changing hands each day during the first 10 trading days of 2023, 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 Russell 2000® Index (RUT).
Index futures contract specs
thinkorswim®, data as of February 2, 2022
Doing the math
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 equals a gain or loss of $10 ($0.10 x 100).
For E-mini S&P 500 futures (/ES), the contract size is $50 times the index value. So, if the S&P 500 index (SPX) is at 2,900, 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 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. To get the latest contract and tick sizes (they can vary), see the CME Group's products page.
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure for Futures and Optionsprior to trading futures products. Futures accounts are not protected by SIPC. Futures and futures options trading services provided by Charles Schwab Futures and Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
