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| Minimum Price Fluctuation |
When an exchange is developing a new futures contract, one detail, which has to be specified, is the price quote. The price quote for the futures contract should be convenient and easy to understand.
For example, a crude oil futures contract is quoted in dollars per barrel to two decimal places (i.e., the nearest cent), live cattle futures are quoted in dollars per 100 pounds to two decimal places, and Treasury bond futures contracts are quoted in dollars and thirty-seconds of a dollar.
The minimum price fluctuation is the smallest amount that the price of a given futures contract can fluctuate upward or downward. It is also called a “point” or a “tick.” the minimum price fluctuation is consistent with the price quote.
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For example, for the crude oil futures contract, the minimum price fluctuation is 1 cent per barrel or $10 for a contract size of 1000 barrels. For the live cattle futures contract, one point is 1 cent per 100 pounds or $4 for a contract size of 40,000 pounds. For the Treasury bond futures contract, the minimum price fluctuation is one thirty-second of a dollar.
