Aside from the unique symbology, futures quote differently from other tradeable asset classes. Since futures are leveraged instruments that allow investors exposure to various asset classes, a one-point move up or down does not necessarily denote a $1 gain or loss. Moreover, not every futures contract moves in a penny increment either. In some cases, some only move in whole points, while others move in a sub-penny or a specific increment. Lastly, since futures are derivative, they have a finite lifespan. Investors may notice that future-dated or back-month contracts may exhibit a higher or lower price than the current or active futures contract.
Leverage
Since futures contracts provide investors with leveraged exposure to a specific asset, it will affect each contract's notional value. In other words, since each futures contract controls a set quantity, it will determine how much an investor will make or lose when prices increase or decrease. For example, a crude oil futures contract (/CL) has exposure to 1,000 barrels of oil. As a result, each whole point it moves up or down equates to $1,000.
Since futures are hedging and risk-management instruments primarily used by producers or institutions, they inherently provide considerable leveraged exposure to a specific asset. Investors looking for reduced leveraged exposure can seek Micro contracts instead. It's important to note that not all standard or E-mini futures contracts may have a corresponding Micro contract available for trading.
You can find a more comprehensive table of available futures contracts in the tastytrade help center for more information. Below are a few examples:
Agricultural:
- Symbol = /ZC – Corn
- Contract units = 5,000 bushels
- Full point value = $50
Energy:
- Symbol = /CL – Crude Oil
- Contract units = 1,000 barrels
- Full point value = $1,000
Equity Indices:
- Symbol = /ES – E-Mini S&P 500
- Contract units = 50 x S&P 500
- Full point value = $50
Tick Size & Tick Value
Since futures provide investors with leveraged exposure to a specific asset, any price movement increment or a tick will equate to a particular dollar value. When trading futures, the value of each price increment is known as the tick value, and the price increment is known as a tick size.
The notional value of a futures contract and its tick value are directly correlated. For example, the E-Mini S&P Futures contract (/ES) ticks in 0.25 increments valued at $12.50, resulting in $50 per point. Meanwhile, the Micro E-Mini S&P Future contract (/MES), which is 1/10 the standard E-Mini contract, also ticks in 0.25 increments. As a result, the tick value of the micro contract is $1.25, resulting in $5 per point.
Knowing the tick value and tick size of each futures contract will keep you well-informed when determining your position's daily performance. You can find a table of all the futures contracts available for trading and their tick size and tick value on thetastytrade Help Center.
Agriculture:
- Symbol = /ZC – Corn
- Tick size = 0.25
- Tick value = $12.50
Energy:
- Symbol = /CL – Crude Oil
- Tick size = 0.01
- Tick value = $10
Equity Indices:
- Symbol = /ES – E-Mini S&P 500
- Tick size = 0.25
- Tick value = $12.50
Contango & Backwardation
When trading futures, there is an active month and a back month. The active month refers to the upcoming futures contract month that expires next, excluding contracts under first notice or subject to a last trade date. It is referred to as the active contract since it typically has the most trading activity and usually has the most market participants. A back month refers to any futures contract beyond the active contract month.
Entering the root symbol of a future when trading or viewing the quote of outright futures contracts at tastytrade will populate the active contract. However, including the month and year code are required when setting up a back-month contract trade or when viewing a back-month futures contract quote. Please visit thetastytrade Help Centerto learn more about quoting or trading back-month futures contracts.
Many factors can affect the prices of back-month futures contracts. When back-month contracts exhibit higher prices, they are in contango, as illustrated below with the E-Mini S&P Futures contract below. You'll notice that the value of each contract gets more expensive in later months.
When back-month contracts are cheaper, they are in backwardation, as illustrated below with Natural Gas futures. You’ll notice that the value of the contract gets cheaper in later months.
Carrying costs or seasonality associated with the asset a futures contract tracks are some reasons back-month contracts may exhibit contango or backwardation.Examples of carrying costs include interest rates for commodities. Storage and seasonal demands can affect back-month contracts for physical commodities like natural gas or livestock. An example of seasonality include cyclical demand. For instance, demand for natural gas could be higher in winter compared to warmer months.
Futures traders can use this information to speculate whether back-month futures prices will converge or diverge by establishing an outright futures calendar spread position. An outright futures calendar spread position describes a strategy where an investor will either buy or sell the active month futures contract and perform the opposite order action to a back-month contract.
It's important to note that some futures contracts only offer specific months available for trading. Please visit the tastytrade Help Center to see all futures contracts available for trading at tastytrade and the supported months. Need a refresher on the different month codes? Click here to return to the Month Code section.
