Futures Foundations · Futures Trading Guide

A small price movement can create a large cash result. Contract units, tick size and the multiplier explain the difference.

Read the unit before the price

Contract specifications identify the underlying quantity, quotation unit, minimum price increment, settlement method and trading schedule. A price may be expressed in dollars per barrel, cents per bushel, index points or a bond quotation convention. Copy the quotation unit into your worksheet. Multiplying a price expressed in cents as though it were dollars creates a hundredfold error.

Convert a tick into cash

For a simple linear contract, tick value equals tick size multiplied by the cash value of one price unit. Assume a fictional index future is worth $5 per point and trades in 0.25 point increments. Each tick is $1.25. A three point move is twelve ticks and changes one contract by $15. Three contracts change by $45. Tick value already includes the multiplier, so do not multiply by contract size a second time.

Calculate the exposure behind collateral

At an index level of 5,000, that fictional $5 multiplier creates $25,000 of notional exposure per contract. Four contracts create $100,000. A margin deposit supports that exposure but does not replace it in the profit calculation. The same deposit can support different risks in different markets because volatility, contract size and broker requirements differ.

Build a contract identity card

Record exchange, product code, month and year, quotation unit, multiplier, tick value, settlement currency and expiration dates. Verify the exact outright or spread specification because their minimum increments can differ. Check the broker ticket against the exchange specification before trading. For a product with nonlinear or inverse payout, use its own formula rather than assuming every contract follows this lesson’s linear calculation.

Try it yourself

A fictional contract is worth $20 per point and has a 0.25 point tick. What is the gross gain from a favourable seven tick move in two contracts?

Show the worked answer

Each tick is $5. Seven ticks across two contracts produce $70 before transaction costs.

Further reading

Educational material. Prices, margins and strategy examples are hypothetical unless explicitly identified as contract specifications. They are not trade recommendations. Futures losses can exceed deposited collateral. Product terms and eligibility vary by venue and jurisdiction.

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