In futures trading, a “tick” is the smallest allowable price movement for a particular futures contract. Each futures market has its own tick size, which is defined by the exchange on which the contract is traded. For example, if the tick size for a crude oil futures contract is $0.01, then the price of that contract can move up or down in increments of $0.01.
The value of a tick also varies by contract and is known as the “tick value.” This is the smallest amount that a trader can gain or lose on a single futures contract due to a one-tick price movement. For instance, if the tick value for a specific contract is $10, a one-tick movement would result in a $10 gain or loss.
Understanding tick size and tick value is crucial for futures traders, as it impacts trading strategy, position sizing, and risk management.
« Back to Glossary Index