Have you heard of Futures points vs ticks? When you first start trading in futures, there are two words that you'll hear which aren't really in other trading or used a bit differently; they are “Points” and “Ticks.”
Quite simply, a point or a tick is a change in the price or value of the underlying asset represented by the future. How these two terms are used is dependent on the amount of price change that is seen.
Futures Points vs Ticks
- When it comes to trading futures, we need to learn the difference between futures points vs ticks. Understanding the trading lingo will go along way in helping you become a good trader. Especially if you're in a trade room that focuses on Futures. You don't want everything feeling like Greek to you.
Like with the stock market, you'll hear the term the Dow is up or down 4 points. Or gold is up or down 6 points in futures as well. Points are the numbers to the left of the decimal point in the price of each future.
They represent the smallest incremental change in the price of the future on that side. So if gold changes from 1868 to 1900, it's up 32 points.
Likewise, if Micro E-mini Russell 2000 Index Futures (M2KZ0) is quoted at 1894.40 (+3.4), then it's up 3 points at 1894 points.
Each point that a future moves will have a specific dollar value related to it. The wheat futures on the Chicago Mercantile Exchange (CME)changing one point or a $1.00 move, is a change of $5000 per contract for 5000 bushels (136 metric tons).
All future's points are made up of their smaller cousins; ticks. Ticks are the changes that happen to a future’s price on the decimal point's right side.
A tick is the smallest unit of change possible in a futures price on a particular market. Each future and each market has a different tick size.
Orange juice futures have a tick size of only $.0005/lb. A single orange juice future is for 15000 lbs. Likewise, the Micro E-mini S&P 500 future has a tick size of 0.25 points. While gold futures have a tick size of $0.10 per troy ounce.
These ticks and their sizes will correspond to the number of ticks needed to change the value of a future by a point. For each of our above examples, OJ will have to increase 2000 ticks to change by a point.
The Micro E-mini S&P will have to increase four ticks to change by a point. And gold will have to increase ten ticks to change by a point.
Similarly, the tick value in dollar terms is different for each future. With OJ, for every tick, the price of the future goes up by $7.50 (15000lbs*$.0005=$7.5).
For the Micro E-mini S&P a single tick raises the value of the future $1.25. And for every tick that gold future raises, the value of the future raises $10 (100 troy ounces * $0.10=$10).
2. Different Sizes of Contracts
Depending on how much you have to invest, you can often find a futures contract that best suits you. If you want to buy a gold contract, you would typically choose a 100 troy ounce contract but note that there are also Mini Gold futures as well.
These are 1/3 the size of the regular gold future contract and only represent 33.333 troy ounces.
Similarly, there are various futures contracts for stock markets(Nasdaq/Russel/Dow) sectors. Other commodities and currencies that have mini and even micro E-mini sizes, and each of these has its own points and tick sizes.
Currently, the CME offers 44 different E-mini contracts and four micro E-mini contracts. When you get into any futures contract, make sure you know which size of future you are buying and the dollar amount of the point and tick so that you can plan both your entry and exit correctly.
Summary of Futures Points vs Ticks
Knowing your futures points vs ticks is essential to be a profitable futures trader. If you trade on margin, this becomes even more important.
Only make trades with a reason behind them and not on gut feeling. We hope this helps and gives you more confidence in the future. As always, we wish you good luck with all of your trades.