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Tick Size, Lot Size, and Liquidity in Futures Trading

Author

Listed:
  • Lars L. Nordén
  • Chengcheng Qu
  • Caihong Xu

Abstract

Futures are standardized and heavily regulated contracts, and these features make futures trading possible at liquid secondary markets. However, regulations constrain futures trading at discrete prices and quantities by imposing a minimum tick size and a minimum lot size. We show, theoretically and empirically, that the tick size and the lot size are important for futures trading costs. In our model, we express the futures bid–ask spread, given lot‐size, and tick‐size restrictions, as a function of futures volatility and trading activity by informed and uninformed traders. Our empirical results support the theoretical model.

Suggested Citation

  • Lars L. Nordén & Chengcheng Qu & Caihong Xu, 2026. "Tick Size, Lot Size, and Liquidity in Futures Trading," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 46(1), pages 43-55, January.
    • Handle: RePEc:wly:jfutmk:v:46:y:2026:i:1:p:43-55
    DOI: 10.1002/fut.70044
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    References listed on IDEAS

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