What is a Futures contract worth? What is its buying power?

When you trade a futures contract, you buy or sell a commodity, or security, at a predetermined price at a specified time in the future. Futures contracts are standardized for quality and quantity.

When you buy or sell 1 futures contract, you are buying a set amount of the underlying commodity.

For example:

• 1 oil futures contract represents 1000 barrels of oil.
• 1 gold contract represents 100 troy ounces of gold.
• 1 EUR/USD FX currency futures contract is €125,000

If you buy 2 oil futures contracts, you are buying the equivalent of 2000 barrels of oil. If a barrel of oil is $50, that’s $100,000 worth of oil.

If you sell 4 Euro futures contracts you are selling €1m vs the USD

How much will I make?

First, you need to understand what the minimum price fluctuation is. 

In the example of oil, the minimum price movement is $0.01. ( If the price of oil futures is $64.10, the next price it will trade at $64.11). We then multiply $0.01 x 1000 barrels ( the contract size) = $10. 

This is known as the tick size.

So, if you buy 1 contract, every time the price moves 1 tick up (1 cent), from $64.10 to $64.11, you would make $10.

If you buy 2 contracts at $64.20 and sell them at $64.65, you make $900 (2×45 ticks x $10 a tick = $900)

In the example of gold, the minimum price movement is $0.10. (Gold is trading at $1793.20, the next price it will trade up is $1793.30, 10 cents higher). Multiply 10 cents by 100 troy ounces = $10 a tick.

Buy 1 gold contract at $1793.2, and sell it at $1793.9 (remember, gold’s minimum price fluctuation is 10 cents), you make 7 ticks, or $70

Making it easy to understand

As a trader what you are concerned with is the value of a tick (this is known as the tick size)- how much will you make or lose every time the price moves one tick. 

You then simply multiply the tick size by the number of contracts you have open in the market (the size of your position), and this will tell you how much you will make or lose every time the contract moves one price.

Here are some examples of tick sizes:

• Oil : $10 a tick
• Gold : $10 a tick
• E-Mini S&P : $12.50
• EUR/USD : $12.50

The tick size for each product is listed in the contract specification for that product, the contract specification can be found on the  CME website (opens in a new tab)