Tick Size
Tick size is the minimum price movement, or smallest increment, by which the price of a security can change in the financial markets. It represents the smallest possible change between bid and ask prices, and it varies depending on the asset class, market, and the exchange where the security is traded. Tick size is important because it affects liquidity, trading costs, and the execution of trades.
Example
In the U.S. stock market, the tick size for most stocks is $0.01, meaning the smallest price movement a stock can make is one cent.
Key points
• The smallest price movement a security can make.
• Affects liquidity and trading costs.
• Varies by asset class, market, and exchange.
Quick Answers to Curious Questions
A smaller tick size can improve liquidity by allowing more precise pricing, while a larger tick size can limit trading flexibility.
It impacts the spread between bid and ask prices, which influences trading costs and how quickly trades can be executed.
Tick size is determined by the exchange and can vary based on factors like asset type, market conditions, and regulatory guidelines.
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