Tick Size, Lot Size, and Liquidity in Futures Trading
Year: 2025
Type: article
Abstract: 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.
Source: Journal of Futures Markets
DOI: 10.1002/fut.70044
Authors: Lars L. Nordén, Chengcheng Qu, Caihong Xu
Institutions: Stockholm University, Ritsumeikan Asia Pacific University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,240
OpenAlex ID: W4414782783