What are futures? Contracts, margin and tick value

How futures contracts work: expiry, multipliers, tick value, initial and maintenance margin, daily mark to market, and one contract's P&L worked through.

Part of the Market Mechanics: Orders and Execution track on Agenticks. About 12 minutes, written for a intermediate reader.

Read first: Long vs short, explained simply, Order types 2: stop, stop-limit, and brackets.

Last reviewed .

Risk notice. Futures are leveraged. A small price move can be a large share of the margin posted, losses can exceed the money in the account, and positions can be closed without notice.

Key takeaways

A futures contract is a standardized agreement, traded on an exchange, to buy or sell an asset at a set price on a set future date. Farmers and food companies used them first, to lock in prices for crops ahead of the harvest. Today futures cover stock indexes, interest rates, currencies, energy and metals, and many active traders use them because they trade almost around the clock and going short is as simple as going long. The word standardized matters. The exchange, not the two traders, decides how much of the asset one contract covers, the smallest price step it can move, and when it expires. That is why every contract of the same type is interchangeable, and why the numbers in this lesson are the same for everyone who trades it.

The four numbers that define a contract Expiry. Each contract has a last trading day. CME Group's Micro E-mini S&P 500 is listed on a quarterly cycle, March, June, September and December, and settles in cash against the index on the third Friday of the contract month. Nobody delivers a basket of 500 stocks. Most traders close or roll their position to the next contract before expiry. Multiplier. The contract multiplier is what one point of price movement is worth. The E-mini S&P 500 is $50 times the index, so a one point move is $50 per contract. The Micro E-mini is one tenth of that size, at $5 times the index. Tick. The tick is the smallest price step. For both contracts it is 0.25 index points, so one tick is worth $12.50 on the E-mini and $1.25 on the Micro. Notional value. The index level times the multiplier is the full value the contract controls. With the index at an illustrative 5,000, one E-mini controls 5,000 x $50 = $250,000 of stock market exposure, and one Micro controls 5,000 x $5 = $25,000.

Worked example: one contract on a 20 point move

A trader buys one contract with the index at 5,000, and the index rises to 5,020. Multipliers and tick values are CME Group's published figures; the index level is illustrative.

Move in index points (5,020 - 5,000)20 points
Move in ticks (20 / 0.25)80 ticks
Micro E-mini ($5 a point) (20 x $5, or 80 x $1.25)+$100
E-mini ($50 a point) (20 x $50, or 80 x $12.50)+$1,000
Size of the move (20 / 5,000)0.4% of the index
The same move falling instead-$100 on the Micro, -$1,000 on the E-mini

Before commissions, fees and slippage. A short position makes and loses the same amounts in the opposite direction.

Margin is a deposit, not a down payment You do not pay $25,000 to hold one Micro E-mini. You post initial margin, a good faith deposit that you will honor the contract. The exchange's clearing house sets a minimum, and a broker may require more. Futures margin is usually a small slice of the contract's value, and the amounts change as markets get more or less volatile, so the current figure always comes from the exchange or the broker. There is also a lower line, maintenance margin. If losses push the account to or below it, the broker issues a margin call, and the account must be brought back up to the initial level, or the position can be closed for you. The reason this matters is mark to market. At the end of every session, each open position is valued at that day's settlement price, and the gain or loss is moved into or out of the account in cash. A losing futures trade does not wait until you close it to cost money. It costs money every day it loses.

Worked example: three losing days on one Micro E-mini

A trader deposits $2,000 and buys one Micro E-mini at 5,000. Assume initial margin of $1,500 and maintenance margin of $1,350. These margin figures are illustrative, not current requirements.

Day 1 settles at 4,980 (-20 points x $5 = -$100)Balance $1,900
Day 2 settles at 4,900 (-80 points x $5 = -$400)Balance $1,500
Day 3 settles at 4,860 (-40 points x $5 = -$200)Balance $1,300
Below maintenance of $1,350? (deposit $200 to restore $1,500)Yes: margin call
Index fall so far (140 / 5,000)2.8%
Loss after three days$700, or 35% of the $2,000 deposited

A 2.8% move in the index took 35% of the account. That is leverage working against the position.

A small move is a large share of the margin

With $1,500 of margin controlling $25,000 of exposure, the position is about 16.7 times the deposit. A 1% move in the index, 50 points or $250 on one Micro, is about 16.7% of that margin. The same arithmetic applies to gains, which is exactly why the losses are as large as they are.

Losses can exceed the deposit This is the point regulators stress most, and it needs saying plainly: with futures you can lose more than the money you put in. Take the account above, with $2,000 in it and one Micro E-mini open. If the index gaps 10% lower overnight, 500 points, the loss is 500 x $5 = $2,500. The account is now $500 below zero, and that $500 is owed to the broker. A stop order would not have helped much, because a gap opens below the stop and the order fills at the first available price. The longer version of this, and the general case for every leveraged product, is in our lesson on leverage and margin.

Contract multiplier
The money value of a one point move
Tick value
What the smallest allowed price step is worth
Initial margin
The deposit needed to open a position
Maintenance margin
The level that triggers a margin call if the account falls to it
Mark to market
Settling each day's gain or loss in cash

Sizing a futures position Because every point is worth a fixed amount, futures are sized by asking how many points away the stop is and what each point costs per contract. With a $50,000 account, a 1% risk budget is $500. A stop 20 points from entry costs 20 x $5 = $100 per Micro contract, so five Micros fit the budget. The same stop on one E-mini costs 20 x $50 = $1,000, twice the budget, so even a single E-mini is too large for that plan. Notice that five Micros control 5 x $25,000 = $125,000 of exposure: the stop decides the risk, not the notional value. The lessons on risk management and position sizing walk through this step by step, and many prop firm accounts add their own limits on top, covered in drawdown and loss limits.

Try it: contracts that fit a risk budget

Set the point value to 5 for a Micro E-mini S&P 500 or 50 for an E-mini. The defaults are illustrative: a $50,000 account risking 1% with a 20 point stop.

You understand how futures work

You can now read a contract's multiplier and tick value, turn a price move into money, explain margin and daily mark to market, and say why losses can exceed the deposit.

Check your understanding

The Micro E-mini S&P 500 is $5 times the index. If you are long one contract and the index rises 20 points, what is the gain before costs?
$100. 20 points x $5 per point = $100.
What is initial margin on a futures position?
A good faith deposit required to open the position. It is collateral that the contract will be honored. It is not a down payment and not the most you can lose.
What does daily mark to market mean for a losing futures position?
The day's loss is taken out of the account that day, even if the position stays open. Futures accounts are settled in cash every day at the settlement price, so losses do not wait for the trade to close.
One Micro E-mini is worth $25,000 at an index level of 5,000, and the margin is an illustrative $1,500. Roughly what share of that margin does a 1% fall in the index use up?
About 17%. 1% of 5,000 is 50 points, worth 50 x $5 = $250. $250 / $1,500 is about 16.7%.

Common questions

What are futures in simple terms?
A futures contract is an agreement, traded on an exchange, to buy or sell something at a set price on a future date. The exchange sets the size and the expiry, and gains and losses are settled in cash every day. Most traders close their position before it expires.
Can you lose more than you deposit trading futures?
Yes. The margin you deposit is a small fraction of the contract's value, so a large move, especially an overnight gap, can produce a loss bigger than the money in the account, and you owe the difference.

Terms defined in this lesson

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Agenticks Learn is general education. It is not financial, investment, tax or legal advice, it does not take your situation into account, and nothing on it is a recommendation to buy, sell or hold any security or to open any account. Examples use illustrative numbers. Investing involves risk, including losing money you put in, and past performance does not predict future results. Tax rules and limits change; the official sources linked in each lesson are the final word.