Quotation factor
Also written Quotation unit
The physical unit a commodity is quoted in on the exchange — Rs per 10 grams for gold, Rs per kilogram for zinc — one of the three inputs that convert a one-tick price move into rupees.
In plain language
A commodity does not trade the way a share does. A share simply has a price. A commodity has a price per something — per 10 grams, per kilogram, per bale, per quintal — and that "per something" is the quotation factor.
It matters because a one-tick price move is worth different amounts of money depending on what unit the price is quoted in and how large the lot is. The exchange fixes the quotation factor for every commodity, and a trader has to know it before he can work out what a single tick is actually worth on his position.
How it works
The workbook gives tick value as a three-input formula: Tick Value = (Lot size / Quotation factor) x Tick size.
For gold, the quotation factor is rupees per 10 grams. A regular gold lot is 1 kilogram (1,000 grams), and the tick size is Re 1 per 10 grams. Tick value works out to (1,000 / 10) x 1 = Rs 100 for one tick.
For zinc, the quotation factor is rupees per kilogram instead. A zinc lot is 5 MT (5,000 kilograms), tick size is Rs 0.05, and tick value is (5,000 / 1) x 0.05 = Rs 250 for one tick. Two commodities, two different quotation factors, two very different rupee values for the same-sounding "one tick."
A worked example
A trader holds one lot of the regular gold contract and the price moves from Rs 62,340 to Rs 62,341.50 per 10 grams — a move of 1.5 ticks at a tick size of Re 1.
Using the quotation factor of rupees per 10 grams and a 1 kg lot: Tick Value = (1,000 / 10) x 1 = Rs 100 per tick. His profit on the move is 1.5 x Rs 100 = Rs 150.
A colleague trading one zinc lot sees the same 1.5-tick-equivalent move in his own contract, at Rs 0.05 per tick and a quotation factor of rupees per kilogram on a 5 MT lot: Tick Value = (5,000 / 1) x 0.05 = Rs 250 per tick, so his profit is 1.5 x Rs 250 = Rs 375. Same number of ticks, different quotation factors, different rupee outcomes.
Why NISM asks about it
Common exam traps
- The quotation factor is the unit the price is quoted in, not the lot size. Confusing the two gives a tick value that is off by a large multiple.
- Every commodity can have a different quotation factor. Gold's "per 10 grams" does not apply to zinc's "per kilogram."
- Tick value needs all three inputs — lot size, quotation factor and tick size — dropping any one gives a wrong answer, not just an imprecise one.
Check yourself
1.A commodity's price may move from Rs 100 to Rs 100.10 or to Rs 99.90, but not to Rs 100.05 or Rs 99.95. What does this tell you?
- a)The daily price limit for the commodity is 10 paise
- b)The tick size for this commodity is Rs 0.10
- c)The lot size for this commodity is 10 units
- d)The quotation factor for this commodity is 10
Show the answer
Answer: (b) The tick size for this commodity is Rs 0.10
Tick size is the minimum price movement in terms of change in price or change in quotation for order. In this example, it means tick size for this commodity is fixed as Rs 0.10 (i.e. 10 paise), and quoted prices of the futures contracts shall be in multiples of 10 paise only.
The three distractors are all real concepts from this chapter, used wrongly:
- Daily price limit is the circuit breaker on a whole day's movement, not the granularity of each price step
- Lot size is the quantity in one contract — 1 kg for gold, 5 MT for zinc
- Quotation factor is the number of units the price refers to — 10 for gold quoted per 10 grams
All three of the last ones do appear together, in the tick value formula: (lot size / quotation factor) × tick size.
And remember: the tick size for commodity derivatives differs from one commodity to another — it is not a market-wide constant.
2.The lot size for a regular gold contract is 1 kg, gold is quoted in rupees per 10 grams, and the tick size is Re 1 per 10 grams. What is the tick value?
- a)Re 1
- b)Rs 10
- c)Rs 100
- d)Rs 1,000
Show the answer
Answer: (c) Rs 100
Tick Value = (Lot size / Quotation factor) × Tick size
- Lot size = 1 kg = 1,000 grams
- Quotation factor = 10 (gold is quoted per 10 grams)
- Tick size = Re 1
- ⚠️ Tick value = (1,000 / 10) × 1 = Rs 100
The workbook's second example, for contrast:
Gold Zinc Quotation factor Rupees per 10 grams Rupees per kilogram Lot size 1 kg (1,000 grams) 5 MT (5,000 kg) Tick size Re 1 Rs 0.05 Tick value (1,000/10) × 1 = Rs 100 (5,000/1) × 0.05 = Rs 250 The quotation factor is the number of units the quoted price refers to — 10 for gold, 1 for zinc. Getting this wrong by a factor of ten gives you Rs 1,000 (option d), which is why the divisor is worth checking before you multiply.
Why tick value matters: the impact of change in price by one tick plays a significant role in entry and exit decisions for market participants.
3.The calculation of tick value depends on which three parameters?
- a)Spot price, futures price and cost of carry
- b)Margin, lot size and daily price limit
- c)Tick size, open interest and quotation factor
- d)Lot size, quotation factor and tick size
Show the answer
Answer: (d) Lot size, quotation factor and tick size
"Tick value shows the worth of one tick movement on the contract value. The calculation of tick value is dependent on THREE PARAMETERS: LOT SIZE, QUOTATION FACTOR AND TICK SIZE."
The workbook's two examples:
- Gold: quoted per 10 grams, lot 1 kg, tick Re 1 → (1000/10) × 1 = Rs 100
- Zinc: quoted per kg, lot 5 MT, tick Rs 0.05 → (5000/1) × 0.05 = Rs 250
Why the other options are wrong:
- (a) Those are the inputs to cost-of-carry and fair value, not tick value.
- (b) Margin and daily price limits are risk controls. They do not enter the formula.
- (c) Open interest is the number of outstanding contracts. It does not affect what one tick is worth.
The definition behind it: "Tick size is the minimum price movement in terms of change in price or change in quotation for order."
Where this is taught
Free preparation for NISM Series XVIRelated terms
- Tick sizeThe smallest price change a contract may be quoted in — prices move only in whole multiples of it, and it differs from one commodity to another.
- Tick valueThe rupee profit or loss on one contract when the price moves by a single tick — lot size divided by the quotation factor, multiplied by the tick size.
- Unit of tradingThe quantity in one contract — for Indian bond and T-Bill futures, notional bonds of Rs 2 lakh face value, which is 2,000 units of Rs 100 — and the reason exposures round rather than match.
- Lot sizeThe minimum quantity that must be traded and, on a delivery contract, actually delivered at expiry — equal to or higher than both the trading unit and the minimum order quantity.
- StandardisationThe exchange fixing a futures contract's size, quality, delivery place, delivery date and permitted price moves, so strangers can trade the same contract on a public market.
- Premium and discount for qualityThe price adjustment when delivered goods differ from the contract's quality specification — a 1:2 discount on castor seed below 47%, and contract rate times 999/995 for .999 gold on a .995 basis.