In financial markets, a tick measures the smallest possible price fluctuation for any particular asset. One tick is worth a specific amount of money, and this amount—the tick size or tick value—varies according to the asset being traded.
Knowing the tick value for a stock or other financial instrument is important for making smart trading decisions. Understand what ticks are, how they are measured, and what they mean for your investment choices.
What Is Tick Size?
In order to set the smallest movement for a financial instrument, tick sizes have always represented a fraction of the base currency—the dollar in U.S. markets. Historically, that fraction was in divisions of one-eighth. These numbers resulted in tick sizes of $0.125 (one-eighth of a dollar) or $0.0625 (one-sixteenth of a dollar), for example.
Under the rules of the U.S. Securities and Exchange Commission, ticks must now be based on hundredths. Thus, most stocks have a tick size of $0.01, which means that for all stocks trading above a dollar, the price moves in increments of 1 cent per share. Various futures markets, however, have their own specific tick sizes.
How Tick Size Works
When you know the tick value and contract size of a particular financial asset, you know how much the price on one contract can move at any given time. This is likewise the minimum amount you can shift your offer for that instrument up or down.
For example, if you know the Euro FX (6E) futures contract has a tick value of $0.00005 per euro and one contract is 125,000 euros, then you know the minimum movement on one Euro FX contract is $6.25 ($0.00004 * 125,000). If a euro contract is currently trading at $162,500, the minimum changes in either direction would be $162,493.75 or $162,506.25.
Why Tick Size Matters
Not knowing the tick size and tick value of the futures contract you are trading can result in taking position sizes that are too big or small relative to your expectations. Each contract moves a different amount each day relative to other futures contracts.
For example, during a certain period, the E-mini S&P 500 futures contract may move an average of 70 ticks a day while crude oil futures may move 150 ticks a day. Even though the tick values are similar for both contracts—$12.50 and $10, respectively—one market moves much more than the other. You would want to compensate for that difference when deciding how many contracts to trade.
There has been debate about whether an increase in tick sizes in small-cap markets might be beneficial. The SEC even conducted a pilot test in this regard, randomly raising the tick size from $0.01 to $0.05 in on some stocks. They found no significant impact from this test.
Tick Sizes for Common Futures Contracts
Here are the tick values for some of the most commonly traded futures contracts:
- The Euro FX (6E) futures contract has a tick size of 0.00005 U.S. dollars per euro. A contract is for 125,000 euros, so its price will move in increments of $6.25.
- The E-mini S&P 500 (ES) futures contract has a tick value of $0.25. The dollar amount per move is $12.50 because the contract unit is $50 times the S&P 500.
- Light sweet crude oil (CL) futures move in increments of $0.01 per barrel. Because a contract is for 1,000 barrels, the dollar value moves in increments of $10.
- Gold (GC) futures have a tick size of $0.10 per troy ounce. A contract is for 100 troy ounces, so the contract price moves in increments of $10.
- Natural gas futures (NG) move in $0.001 increments per million British thermal units (MMBtu). Because a contract is for 10,000 MMBtu, the price moves $10 at a time.
How to Find Other Tick Sizes and Values
To determine the tick size and value of a different futures contract that's traded on a CME Group exchange, go to CME Group's website, move your cursor over Markets, and select a featured product or a category of products. Once you've found your particular contract, click on the Contract Specs tab. The tick size and dollar value will be included in the basic contract information.
You can find the same information for contracts traded on another exchange by going to that exchange's website.
Calculating Profit and Loss
Those tick increments and values are based on one contract or share. To calculate how much you stand to gain or lose on each tick movement after having traded multiple futures contracts, multiply the tick value times the number of contracts you purchased.
For example, if you bought three contracts of the E-mini S&P 500 at $1,623.25 and the price rises to $1624.25, you will have gained $150. That's because the price went up four ticks:
$12.50 * 4 ticks * 3 contracts = $150
If the price declines to $1,620, you would have lost $487.50. The price went down 13 ticks, so:
$12.50 * 13 ticks * 3 contracts = $487.50
Since stocks typically trade in 100-share units called lots, for every cent the price moves, you stand to make or lose $1 on each lot.
- A tick measures the smallest possible movement in value that a particular financial asset can make on the market.
- Tick sizes vary depending on the asset.
- The tick value was historically a fraction based on eighths, such as $0.0625 or $0.125, but the SEC now requires they be based on hundredths (1 cent).
- To know how much the value can change for one contract, multiply the tick size times the size of the contract.