Futures Contract: Read the Tick Value
A futures contract is a standardised, exchange-traded agreement to buy or sell a set quantity of something at a set date. The exchange fixes the contract size, the minimum price increment, what that increment is worth, the expiry months and the settlement method, and the specification page states all of them.
How it works
A futures contract is a standardised agreement to buy or sell a set quantity of something at a set date. Every contract in a series is identical, so they are fungible — hence one deep order book.
The specification is the product, and reading it is the actual skill. One exchange page per contract fixes the contract size, the tick, the tick value, the expiry months and the settlement method.
So the tick value is the number that matters. Not the price, not the percentage move — how much money one minimum increment is worth, because that is what multiplies your stop distance into a loss.
Margin, notional value and expiry
Margin is a performance bond, not a deposit. In a margin account you borrow and pay interest; here nothing is borrowed. It is a good-faith bond that you can settle, raisable by the exchange mid-trade.
And the contract controls far more than it costs. One contract represents a quantity of the underlying worth far more than the bond posted against it. That gap is the leverage, so sizing starts from notional value, not margin — the same choice as lot size.
It expires, which means you have to roll it. Closing the expiring contract and opening a later one is two instruments at two prices, and every roll pays the bid-ask spread again.
And some of them actually deliver something. Some settle in cash, others require physical delivery; the specification says which, and settlement covers the mechanics. Close or roll before delivery obligations begin.
In practice
Costs are per contract and easy to count. Commission is charged per contract each way, not as a percentage of value, so the cost is knowable before you trade.
One exchange means one honest volume figure. Everybody trades the same contract at one venue, so volume is a genuine count, and open interest shows which expiry is actually in use.
The front month carries almost all the activity. The same instrument is deep in the nearest expiry and thin in the next, so a trading range tradeable on the front contract may not be one month out.
And it trades nearly around the clock. One short daily break rather than a long overnight close changes the opening gap problem without removing it; liquidity still follows the trading sessions.
The stop is sized in ticks, and ticks are money. A stop loss at a structural level is a distance in ticks; only the tick value turns it into a figure you can hold against your risk per trade.
Every round trip costs 2% of a bar. On this site’s shared 576-bar history it measures 0.0098 price units — 2% of a median bar’s range and 45% of the smallest. Ranges run 0.17 at the tenth percentile against 1.101 at the ninetieth, a ratio of 6.5.
Reading the specification first
Do this before the chart, not after it. Open the exchange’s specification page for the contract you intend to trade and find four things: the contract size, the tick, the tick value and the expiry months.
Then do one multiplication. Decide how wide the stop needs to be on this product in ticks, multiply by the tick value, then multiply again by the number of contracts you were considering. That is the money at risk.
Hold that figure against your risk per trade rule before you look at a single candle. If one contract already exceeds it, the chart is irrelevant: the instrument is too large for the account today, and no amount of analysis shrinks the contract size.
Then check two dates. The last trading day, and the first notice day if the contract has one, because either can end the position whether or not the trade is working.
What a futures contract is not
It is not a share. You hold a dated obligation, not a claim on a company.
It is not a loan. The margin is a bond against performance, so no borrowed money accrues interest.
It is not a leverage setting. The multiple is a property of the contract, whether or not you chose it.
And it is not the market itself. Futures covers that; this page is the document.
When it fails
In a range the roll cost is the whole result. A position carried sideways across several expiries pays the spread at every roll while price returns to where it started.
The tick value was never looked up. The stop was placed correctly, the loss was several times what was intended, and nothing on the chart showed it in advance.
The margin requirement changed mid-position. Exchanges raise requirements when volatility rises — precisely when the position is already uncomfortable — and the increase is not negotiable.
The expiry was forgotten. A contract held to its last day does not quietly continue — it settles, or in some products it becomes a delivery obligation.
The chart was the front month and the position was not. A back month can be thin enough that the exit price bears little relation to the last trade printed.
And one contract was already too large. The dullest failure and the most common: the account could not carry the notional value, so every decision afterwards was made under pressure.
The original data
437 videos teach prop firms and not one of the 24,971 mentions tick size.
research/broker-coverage.json, scanning research/search-study-corpus.jsonl, finds
“prop firm” in 437 videos across 258 channels at a median of 11,043 views, “emini” in 21 at 8,454, “nq”
in 74 at 6,701, and “futures contract” in 12 across 10 channels, median 2,276, maximum
782,757. “Contract size” appears once, at 30,578 views. “Tick size” appears zero times — the one figure
that converts a stop distance into money.
And site/measure_series.py shows why that omission is expensive. Resetting exposure every bar
before costs, research/series-measurements.json records the base series returning 3.61%; at two times
exposure 6.61% against a naive 7.22%, at three times 8.93% against a naive 10.82%, while the deepest
drawdown went from 3.76% to 7.45% and then 11.08%. The downside scaled roughly in full and the upside
did not, which is what a contract’s notional size does to an account. Read the exchange’s specification
page for any contract before your first trade in it, and write the tick value down.
Related
Futures covers the market and how trading it differs from shares. Margin account is where the performance bond sits, and what happens when the exchange wants more. And leverage is the arithmetic that turns a contract’s notional size into a position an account can survive.
I had the chart right and the arithmetic wrong. I put the stop where the structure said it belonged, and only after the trade closed did I work out what that distance had actually been worth in the contract I was holding. The tick value had been sitting on the exchange’s own page the whole time and I had never opened it. Now I write it down before I take a position in anything new.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.