Tick value
Also written Value of one tick · Tick worth
The 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.
In plain language
Tick size tells you how far the price may move. Tick value tells you what that move is worth to you.
They are different because a contract almost never covers exactly one quotation unit. Gold is quoted in rupees per 10 grams but a regular contract covers a kilogram — a hundred times as much — so every rupee of price movement is a hundred rupees of position.
The bridge between the two is the quotation factor: how many of the physical market's quoted units make up the lot.
How it works
Three numbers, taken straight off the contract specification:
- Lot size — how much commodity one contract covers
- Quotation factor — the number of physical units the price is quoted against
- Tick size — the minimum price movement
Divide the lot by the quotation factor to get how many quoted units the contract represents, then multiply by the tick size.
The practical use is position sizing. A trader who can tolerate a Rs 5,000 loss on a single position and who knows one tick is worth Rs 100 knows his stop is fifty ticks wide. It is also the unit in which mark-to-market moves: the daily MTM on a position is the number of ticks the settlement price moved, multiplied by the tick value, multiplied by the number of lots.
The formula
Tick Value = (Lot size / Quotation factor) x Tick size
Lot size and quotation factor must be in the same physical unit — grams with grams, kilograms with kilograms — before they are divided.
A worked example
Both of the workbook's worked cases, then the consequence.
Gold, regular contract
Quotation factor = Rs per 10 grams
Lot size = 1 kg = 1,000 grams
Tick size = Re 1 per 10 grams
Tick value = (1,000 / 10) x 1 = Rs 100
Zinc
Quotation factor = Rs per kilogram (so the factor is 1)
Lot size = 5 MT = 5,000 kilograms
Tick size = Rs 0.05
Tick value = (5,000 / 1) x 0.05 = Rs 250
Now put it to work. A trader is long three gold contracts and the settlement price falls from Rs 50,000 to Rs 49,850 per 10 grams — 150 ticks.
MTM loss = 150 ticks x Rs 100 x 3 lots = Rs 45,000
That Rs 45,000 is debited overnight, and the same arithmetic scales the workbook's own gold example: a Rs 100 per 10 grams move on a one-kilogram contract is a notional Rs 10,000 on the position.
Why NISM asks about it
Chapter 3 (Commodity Futures), section 3.9, where the formula and both worked examples appear. This is one of the most reliably calculated items in the paper — the question hands you a lot size, a quotation and a tick and asks for the tick value, or runs it backwards and asks for the tick size implied by a given tick value.
Common exam traps
- Match the units before dividing. A lot of 1 kg against a quotation per 10 grams is
1,000 / 10 = 100, not1 / 10. - The quotation factor is 1 when the price is quoted per unit of the lot measure — zinc is quoted per kilogram and the lot is in kilograms, so the divisor is 1, not 5,000.
- Tick value is not the contract value. It is what one minimum move is worth, not what the contract is worth.
- A bigger tick value does not mean a riskier contract. Gold's Rs 100 tick against zinc's Rs 250 says nothing about which position carries more risk — for that you need contract value and volatility.
- Tick value changes whenever the lot size changes, even if the tick size does not. Index contracts whose lot is reset on annual rebalancing are the workbook's example.
Check yourself
1.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.
2.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."
3.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.
Where this is taught
- Series IV · Chapter 3: Exchange Traded Interest Rate Futuresintroduced here
- Series XVI · Chapter 3: Commodity Futuresintroduced here
- Series V-D · Chapter 20: Exchange Traded Interest Rate Futuresintroduced here
Related 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.
- Mark to MarketThe daily settlement of a futures position at that day's closing price, so gains and losses are paid in cash every evening instead of accumulating until expiry.
- 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.
- Quotation factorThe 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.
- Maximum tenorThe 12-month ceiling on a commodity index derivative — an index futures contract may not run longer than 12 months, and index options are permitted up to 12 months of expiry.