Tick Size

What Is Tick Size?

Tick size is the smallest allowed change in the price of a security. If a stock has a tick size of one cent, its quoted price can move from $10.01 to $10.02, but it cannot move to $10.015. Every bid and ask order must fall on one of these permitted price points. The term comes from the old practice of ticker tape machines printing a mark each time a price changed.

How Tick Size Works

Exchanges and regulators set tick sizes for each market or instrument. In US equity markets, the general rule for most stocks is a minimum price increment of one cent for quotes at or above one dollar, with smaller increments allowed for certain lower-priced securities. Other markets, such as futures, options and foreign exchanges, use their own rules, and each futures contract often specifies its own tick size and the dollar value of that tick.

Tick size shapes how orders are placed and matched. Because prices can only move in fixed steps, traders often queue at the same price level, and the order in which orders arrive usually determines who gets filled first. A larger tick can make it more costly to compete on price, while a smaller tick allows finer price competition.

Why It Matters to Investors

Tick size affects trading costs and market depth. The gap between the best bid and best ask, known as the bid-ask spread, cannot be narrower than one tick. For heavily traded stocks with narrow spreads, the tick size may be the binding constraint, meaning prices would move in finer steps if allowed. For thinly traded stocks, a relatively large tick can widen effective spreads.

Regulators have studied whether changing tick sizes improves liquidity or trading quality. Some proposals have aimed to widen ticks for less-traded small companies to encourage market makers to quote them, while others argue smaller ticks help investors get better prices. Investors can see the tick size for a given security in its contract specifications or exchange listing details.

Example

Suppose a stock trades with a one-cent tick and the best bid is $50.00 while the best ask is $50.01. The spread is one tick, the narrowest possible. If the tick size were ten cents, the best bid and ask would be at least ten cents apart, and a trader wanting to improve on the bid would have to jump in larger steps.