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Understanding a Futures Contract


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Minimum Fluctuation or Tick Size on a Futures Contract
This describes the smallest increment a given futures market can move – also called a tick. For example, a tick in crude oil would be .01 or 1 cent. The contract size of Crude Oil is 1,000 barrels. To calculate the value of a tick, you would multiply 1,000 x .01 = $10. So, every time you see the price of Crude Oil move up or down .01, you know that means it’s a $10 move. A 5-cent move in the price of Crude Oil would mean it is worth $50 if you are trading one contract.

Contract Specifications are something you should have memorized before you begin trading commodities and futures. Significant errors can be made by not knowing these numbers. I have seen rookie traders take positions by mistake on contracts that were far too large and volatile for their accounts. Better to prepare beforehand or you will learn the hard way.

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