Product Moves on Exchanges (understanding ticks) (CME, USA)

Building a trading plan

Traders will want to know three key facts pertaining to calculating profit for each contract they trade.
  1. The size of the minimum move for the contract. For example, CL (Crude Oil) moves in cents with the smallest change in price possible $0.01 or one cent.
  2. The dollar value associated with the minimum move of the contract. For example, each $0.01 move in CL is worth $10.
  3. The number of ticks in each point or dollar of movement. For example, there are four ticks for each ES (E-mini S&P 500) and 10 ticks for each dollar move in the GC (Gold) contract.
By putting these variables together, a trader can build their trading plan for the contract they are trading. Based on this information and the average daily move of a contract, traders should select futures contracts that are best aligned with their risk profile. Your targets will be different in each market you trade based on the risk profile you create for yourself.

Calculating profit and loss

For example, if a trader wants to risk only $100 and the minimum move in CL is 0.01, worth $10, then they must set their stop within $100/$10 or 10 ticks away from where you entered.

Each contract has different values which will affect the profit and loss as you exit a trade. Profit and loss are calculated by referring to ticks or by referring to points. For example, if a trader purchases the ES contract at 2,900 and then the market moves higher and is trading at $,2905, there is a profit of 2,905 minus 2,900 or five points. Since each point in ES is worth $50, the profit is calculated $50 x 5 or $250 dollars.

If a trader purchases a contract of GC at $1,195, but the price of GC moves lower to $1,192.50, there is a loss of 25 ticks. Since each tick is worth $10, there is a loss of 25 x $10 or $250 dollars.

Notional Value

Along with calculating price per tick and/or dollar value, all futures contract also have what is called a notional value. This is the value of the commodity that you can control in the market.

For example, the CL contract is based on 1,000 barrels of oil. This means that the notional value of the contract is the price of the contract multiplied by 1,000. If crude is trading at $70, the trader will have control over $70,000 in the market place.

Because you are controlling a larger amount of capital than the cash you have invested, a trader should understand how much the gains or losses will be magnified.


Updation History
First updated on 12th October 2020.