TL;DR: Profit/Loss in futures trading = (Tick Value × Ticks Moved) × Contracts. More ticks and contracts mean higher profits or losses.
Before you can calculate your profit or loss in futures trading, there are a few key things you need to understand:
Tick Size: The smallest possible price movement for a contract. It’s different for every futures contract.
Tick Value: The amount of money gained or lost when the price moves by one tick."
Number of Ticks: The total price movement (in ticks) between your entry and exit points.
Number of Contracts: This is how many contracts you are trading. More contracts mean larger profits or losses.
Once you understand these key concepts, you can use a simple formula to calculate your profit or loss using a futures profit calculator.
What is a Tick in Futures Trading?
A tick is the smallest price change allowed for a futures contract. This means the price can only move in fixed amounts, with no smaller changes allowed.
For example, if the tick size is 0.25, the price can only change by 0.25 points at a time.
So for the E-mini S&P 500, the price will move from 6000.00 to 6000.25, then to 6000.50, and so on. The price won’t change by smaller values like 6000.10.
Each tick has a corresponding tick value, which tells you how much money you gain or lose when the price moves by one tick.
How is a Tick Calculated?
The tick value tells you how much money you gain or lose when the price moves by one tick. For example, in the case of the E-mini S&P 500 futures contract, the tick value is $12.50.
So, if the price moves by 1 tick (0.25 points), you earn or lose $12.50 per contract, depending on your trade direction.
Calculating Profit & Loss Using Ticks
Profit/Loss Calculation Formula
To calculate your profit or loss, you can use this formula:
Profit/Loss = (Tick Value × Number of Ticks Moved) × Number of Contracts
Example 1: One Contract Trade
Let’s say you're trading 1 contract of the E-mini S&P 500 futures, and the price moves 5 ticks in your favor (from 6000.00 to 6001.25). Here's how you calculate your profit:
Tick Size: 0.25 points
Tick Value: $12.50
Number of Ticks: 5 ticks
Profit Calculation:
1 tick = $12.50
5 ticks = 5 × $12.50 = $62.50
So, if you traded 1 contract and the price moved 5 ticks in your favor, your profit would be $62.50.
Example 2: Multiple Contracts
Now, let’s say you're trading 3 contracts instead of 1. The price moves 5 ticks in your favor.
Tick Size: 0.25 points
Tick Value: $12.50
Number of Ticks: 5 ticks
Contracts Traded: 3
Profit Calculation:
1 tick = $12.50
5 ticks = 5 × $12.50 = $62.50
For 3 contracts: 3 × $62.50 = $187.50
So, if you traded 3 contracts and the price moved 5 ticks in your favor, your total profit would be $187.50.
Key Points to Remember
A tick is the smallest price movement in a futures contract.
Tick size is how much the price can move in one step, and tick value is how much money you make or lose per tick.
The more ticks the price moves in your favor, the higher your profit.
The number of contracts you trade multiplies your profit or loss.
If the price moves against you, the same calculation applies for your loss.