Hi,
Los22.c on Schweser’s notes say for futures:
Because contract is based on 100,000 par, each 1/32 of change in price of 100 par will equate to a gain or loss on the contract of 31.25
31.25=(1/32)(100,000/100)
Can anyone please help shed some light on this ? As in what is the equation / formula doing here?
Thanks a lot!!!
Futures prices move by tick size, it’s smallest price movement. In this case the tick size is 1/32nd per 100 par so for a 100,000 contract the minimum tick value is $31.25 (smallest price movement in the quoted price). There are a variety of tick sizes depending on the type of futures contract.
Hey man, I was confused about this part too. Hope this helps.
The 1/32 is a market convention.
In the U.S. bond markets, par value is when the price dollars is equal to the face value. A Treasury note is denominated in units of $1,000, but has its price quoted by common convention in terms of moving the decimal point to the left by one position. A Treasury note selling at par value would thus be quoted as 100:00, where the two digits to the right of the colon are priced in thirty-seconds (1/32) of a dollar (0.03125 dollars.) A par value price of 100:00 would thus equate to a price of a note or bond selling at face value of $1000 per Treasury note. A price of 75:31, on the other hand, would thus equate to a note or bond quoted at a price of (75 + 31/32) x 10, or $759.6875, selling at an obvious discount from its par value of 100:00 for a face value paid upon maturity of the note or bond of $1,000.
Taken from: https://www.analystforum.com/forums/cfa-forums/cfa-level-i-forum/9753888
Moonborne firefirehelphelp, makes sense, im actually happy with the 1/32 tick size. Correct to say it is dividing 100,000 by 100 as the future holds 100 bonds of $1000 (hence the 100k) and our tick is 1/32 of percentage (hence the (1/100)(1/32) ?