Futures Contract: Read the Tick Value
A futures contract is a standardized, 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 standardized 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 pays the spread and two commissions. Say a contract has a tick value of 12.50 and trades one tick wide: crossing the spread costs 12.50 per contract before commission, which is a quarter of the risk on a 4-tick stop and a rounding error on a 40-tick one.
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.
How this connects
It is the standardized version of a forward contract. A forward is negotiated privately and carries counterparty risk until settlement; a futures trade is novated to a clearing house, which acts as central counterparty to both sides.
That clearing structure is what the margin protects. Positions are revalued every day, and when losses eat through the bond the broker issues a margin call, requiring cash before the position can stay open.
Exchanges also cap how far prices may move. A daily price limit, such as limit up on an agricultural contract, can leave a position impossible to exit until the next session, and equity index products use a circuit breaker instead.
The price differs from spot for a reason. Interest cost, storage and the convenience yield on commodities set the gap, and the difference between the two is the basis, which a hedge does not remove.
The same structure covers very different underlyings. Treasury futures price government debt, micro futures shrink index contracts to smaller sizes, and perpetual futures in crypto drop the expiry altogether in exchange for a funding payment.
Options can be written on futures too, giving the right rather than the obligation to hold the contract.
And a futures prop firm runs its evaluation on these contracts, which is why the tick value arithmetic above decides how much room its loss limits actually leave.
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. A scan of the full study finds “prop firm” in 437 videos across 258 channels at a median of 11,043 views, “emini” or “e-mini” in 21 at 8,099, “nq” in 63 at 7,094, and “futures contract” in 12 across 10 channels, median 3,967, maximum 782,757. “Contract size” appears once, at 30,578 views. Tick size is the one figure that converts a stop distance into money.
The question: Expiry is next week. Roll it or close it?
And leverage is why tick size matters. Say a contract controls 100,000 of the underlying against a bond of 5,000: a 2% move against the position is 2,000, which is 40% of the bond, so a stop that looks narrow on the chart can be a large share of the account in money. That 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.
The tick size and multiplier in a contract’s specification become a dollar risk in the tick value calculator, before any order is placed.
I write the tick value down before I take a position in anything new. The chart can be right and the arithmetic still wrong: a stop where the structure says it belongs is a distance, and that distance is worth a different amount in every contract. The number sits on the exchange’s own page, so there is no excuse for guessing at it.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.