Unit
Family XII · Other terms
Not to be confused with lot, contract size, position size.
Unit is the standard quantity in which an instrument is counted, quoted and settled. One unit of a share is normally one share, one unit of a currency pair is one unit of the base currency, and one unit of a futures or options contract is whatever quantity the contract specification defines. Because the unit is fixed by the contract or venue rather than by the trader, it is the basis on which position sizes, tick values and settlement amounts are calculated.
Where the unit comes from
The unit is set by the instrument itself, not chosen freely by the trader:
- Equities: one unit is usually one share, though some venues quote in lots or board lots.
- Spot forex: one unit is one unit of the base currency; retail platforms often display position size in lots, where one standard lot represents a fixed number of base-currency units.
- Futures and options: one unit is one contract, whose underlying quantity is stated in the contract specification.
- Bonds: one unit is normally one bond with a defined face value, and prices are quoted per 100 units of face value.
Because these conventions differ by market, exchange and jurisdiction, the unit must be confirmed from the relevant contract specification rather than assumed.
Worked example
A trader holds a position expressed in units and wants the cash value of a one-tick move.
The same arithmetic applies to any instrument once the unit and tick size are known; only the contract specification changes the numbers.
Units and position sizing
Position size is the number of units held, multiplied where relevant by the quantity each unit represents. Two traders can hold the same number of contracts yet different economic exposure if the contracts have different underlying quantities. For this reason, risk limits are often expressed in units of the underlying rather than in contracts or lots, so that exposure is comparable across instruments.
Often confused with
- lot
- A lot is a standardised unit of quantity used to measure the size of a trade in a financial instrument, with the number of underlying units per lot set by the contract specification.
- contract size
- Contract size is the fixed quantity of an underlying asset represented by one derivative or spot contract, expressed in units, shares, barrels, or a notional amount.
- position size
- Position size is the quantity of an asset or contract held in a single trade, expressed in units, lots, or notional value, and determined by the trader's risk tolerance and stop-loss distance.