Tick value

2. How it is computed

It is specified, not calculated. What you compute from it is the risk:

ticks    = stop distance / tick size
risk     = ticks × tick value × contracts

Micro contracts for the main index futures carry a tick size of 0.25 and tick values well under two dollars; micro gold moves in 0.10 increments; micro crude in 0.01. The point value — what a full point is worth — follows from dividing the tick value by the tick size, and it differs sharply between instruments.

Check the current figures against the exchange's own specification before relying on them. They are stable, but they are not yours to assume.

3. What it rests on

Nothing. This is a contract specification, not a theory about the market. It is one of the few numbers in trading that is simply true.

4. Where it is wrong

The number is not wrong; the use of it often is.

The most common error is comparing instruments by points. "Twenty points on gold" and "twenty points on the Nasdaq micro" are different amounts of money, and the gap is large. A stop that feels tight on one instrument can be four times the risk on another.

The second is forgetting that costs are measured in the same unit. Commission and fees on a round turn translate into a distance on the chart — a fraction of a point on some instruments, nearly a full point on others. A method that targets a few points is competing against that number directly.

And the tick value says nothing about whether the distance is sensible. It converts a stop into money; it does not tell you whether the stop belongs there.

5. Is there a measurement

Not of the value itself — it is specified. The cost side has been measured, though: round-turn commission and fees per contract translate to a fraction of a point on the index micros and roughly a fifth of a point on micro gold.