Getting Started in Interest Rate Futures


10-Year Note Futures

Symbol: ZN

The 10-year note futures, or simply “the note”, has many similarities to the 30-year bond futures contract. The contract size and the point value are all common characteristics. Similarly, if you were able to come to peace with the 30-year bond futures calculations the 10-year note won’t be an issue.

To reiterate, the contract size of the note is $100,000 which is split into 1,000 handles equivalent to $1,000 and a tick value of 1/32nds or $31.25. Unlike the 30-year bond futures contract, the T-note trades in half ticks (.5/32) valued at $15.625.

Calculating profit, loss and risk in the 10-year note is identical to that of the 30-year bond. To demonstrate, if a trader goes short the 10-year note futures from 123’29.5 and places a buy stop to protect him from an adverse move at 125’15.0 the risk on the trade would be 1’17.5 or 1,546.87. This is calculated by subtracting the entrance price of the short from the potential fill price of the buy stop at 125’15.0. Once again, the math requires borrowing from the handle in order to properly subtract the fractions. This is done by adjusting the stop price from 125’15.0 to 124’47 ((125 – 1) + (15/32 + 32/32)).

47/32 – 29.5/32 = 17.5/32, 17.5 x $31.25 = $546.87

124 – 123 = 1, 1 x $1,000 = $1,000

Total Risk = $1,531.25 plus commissions and fees

5-Year Note Futures

The 5-year note futures contract is identical to the T-bond and the 10-year in terms of contract size. Each 5-year note futures contract represents a face value of $100,000 of the underlying security. Once again, the contract is comprised of handles valued at $1,000 and each handle is divided into 32nds. However, in the case of the 5-year note each 32nd is broken into 4 minimum increments. In other words, each 32nd moves in quarter increments or .25/32. If you recall, the 10-year note has a minimum price fluctuation of .5/32, and the 30-year bond has a minimum tick value of 1/32nds. If 1/32 is equal to $31.25, and .5.32 is worth $15.625, then we know that .25/32 must be $7.8125. Nobody said this would be easy. The futures markets can be potentially lucrative but there is no such thing as “easy money”.

There aren’t any surprises when it comes to 5-year note futures calculations, other than the fact that they trade in quarter ticks. However, this only requires an additional digit to be typed into your calculator as the process remains the same.

A trader that goes short a 5-year note futures from 119’10.25 and places a limit order to take profits at 117’05.50 will be profitable by 2’04.75 or $2,148.43. This is figured by subtracting the limit order price from the original sell price.

10.25/32 – 4.75/32 = 4.75/32, 4.75 x $31.25 = $148.43

119 – 117 = 2, 2 x $1,000 = $2,000

Total Profit if Limit Order Filled = $2,148.43

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