Key takeaways
- Tick value converts price moves to money; compute risk with it.
- Futures margin is a performance deposit set by the exchange and broker.
- Per-contract commissions, exchange and clearing fees all count.
A futures contract is a standardised agreement to buy or sell an asset at a fixed price on a future date. They trade on regulated exchanges, which gives them transparent prices and central clearing.
Reading a contract specification
| Field | Why it matters | Example |
|---|---|---|
| Tick size | Smallest price move | 0.25 index points |
| Tick value | Money gained or lost per tick | 12.50 USD on a standard equity index future |
| Contract multiplier | Converts price to cash value | 50 USD per index point |
| Margin | Deposit required to hold a position | Set by exchange and broker, changes with volatility |
| Expiry | When the contract ends | Quarterly for many index futures |
Micro contracts are one-tenth of the size, which means one-tenth of the tick value and margin. They are useful for learning and for sizing risk precisely.
Before trading futures
- Pick the specific contract month. Front-month contracts are most liquid; check volume.
- Calculate risk in cash. Number of ticks times tick value times contracts.
- Know your margin. Intraday margin can be lower than overnight margin at some brokers.Tip: Margin can rise at short notice.
- Plan rollover. If you hold past expiry-approaching days, close and reopen in the next month, or settle.