When trading with raw materials, we calculate price fluctuations using a measure known as tick. A tick is thus the smallest possible change in the price of any instrument based on a raw material and the size of a tick is exclusive to each instrument.
For example, if the ounce of gold trades at $ 1700.00 and goes to $ 1700.01, we will say that the market has fluctuated by one tick. If the barrel of crude trades at $ 90.05 and goes to $ 90.05, we will also say that it has fluctuated in a tick. Therefore, in these markets, a fluctuation of a tick will simply refer to a change of one cent in the price.
However, other instruments do not vary in fluctuations of 1 cent. For example, soft raw materials, such as wheat, corn and soybeans, all fluctuate in increments of 25 cents. Suppose then that wheat has gone from $ 690.50 for (100) bushels to $ 690.75: we will say that the fluctuation has been one tick. On the other hand, if soybeans go from 1541.50 to 1542.00, we will say that the price has fluctuated in two ticks.
Raw materials – Ticks
Next we will see a table with the most negotiated raw materials. The increase refers to the fluctuation of each of them, that is, a change of a tick. It is also useful to consider what we are buying or selling, whether they are barrels of oil, ounces of silver, 100 bushels of wheat or liters of gasoline, etc.
|Natural gas||USD||0.001||mmBtu *|
|Coffee C||USD||0.05||lbs (100)|
|Sugar no.11||USD||0.01||lbs (100)|
|Coffee no.2||USD||0.01||lbs (100)|
* mmBtu = one million British thermal units
Calculation of the value of a fluctuation of 1 tick
The most important thing to keep in mind when calculating raw material prices is that they are all listed in US dollars. Therefore, to calculate the value of a fluctuation of 1 tick, we just have to multiply the size of the position by 1 tick.
Take, for example, the price of crude oil. If we buy 100 barrels of crude oil and the price per barrel rises $ 0.01, our position will appreciate at $ 1.00 (100 * 0.01). If we buy 500 barrels of crude oil, every time the price rises $ 0.01, we will get $ 5.00. Therefore, the size of our position is what determines the monetary value of each fluctuation of 1 tick.
Therefore, in the final calculation, we must consider whether our account is denominated in a currency other than the US dollar. Imagine that we sell 200 ounces of gold shortly and that the price drops from $ 1710.60 to $ 1710.10. This assumes that the price of gold has fluctuated by 50 cents in our favor.
We sell 200 ounces, so 200 * 0.50 is $ 100. That $ 100 benefit will be converted to the currency of our account. Therefore, if we have an account in euros and the applicable EUR / USD exchange rate is 1,3200, we will obtain a benefit of € 75.76 for that operation.
$ 1710.60 – $ 1710.10: 50 cents (of $) of benefits per ounce sold
Amount: 200 ounces = $ 100 at an exchange rate of 1.32 = € 75.76
Our broker will be the one who performs this calculation, but it is equally important that we know how it works.