Every trader should have a basic understanding of what a tick is, the tick values for the markets they trade, and how to use the CME Group’s website to find market information.
Recently, the CME Group has been producing quality videos that explain basic trading concepts. Their tick video, displayed below, is no exception. The video starts off by explaining that a tick is the minimum amount a market (also called a “contract instrument”) can move. In the case of the E-mini, they determined the tick size to be 0.25. The E-mini’s index point value was determined to be $50.
Therefore, $50 * 0.25 = $12.50 per tick. This means that when you’re trading the E-mini, the smallest amount you can make or lose is $12.50 excluding broker fees.
The E-mini is more of an abstract market in terms of what you’re trading, than say, Crude Oil. With Crude Oil, the CME Group decided that 1,000 barrels is the CL’s contract unit. They set the tick size to 0.01.
Therefore, each tick is worth $10. By the way, if a market has a low tick value price (say under $10), it might not be worth scalping. Scalping is quick in and out trading. Since you’re trading for small amounts, it doesn’t make much sense to trade markets that have smaller profit poentials. For these low tick value markets, you’re probably better off trading a method like the Atlas Line or ATO 2.
If you want to look up the specs for a market to see if it’s worth trading, etc., use the search page on the CME’s website: http://www.cmegroup.com/search/. Type in the name of the market and click the search button. Try calculating the tick values on your own and see if it all makes sense.
You may be asking how the CME Group determines the $50 point value for the E-mini and the 1,000 barrel value for Crude Oil. They have their own internal calculations that consider the size of the financial instrument and the requirements of the marketplace. They want to provide traders and financial institutions with an environment of optimal liquidty and tight bid-ask spreads.
I am sure the process for analyzing futures markets to come up with all the values is quite involved. It’s a good thing that we traders do not have to worry about it and the values do not often change. If they do change, you can bet the CME Group will make an announcement.
In fact, NinjaTrader often posts updates regarding significant market changes, such as when the CME Group began offering the Russell 2000 again. Use this link to see all of the advisories, such as “CME Reduces Tick Size of EUR/USD Futures.”