Tick size
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In
financial markets A financial market is a market (economics), market in which people trade financial Security (finance), securities and derivative (finance), derivatives at low transaction costs. Some of the securities include stocks and Bond (finance), bonds, ...
, the tick size is the smallest price increment in which the prices are quoted. The meaning of the term varies depending on whether stocks, bonds, or futures are being quoted.


Bonds

U.S. mortgage bonds and certain corporate bonds are quoted in increments of one thirty-second (1/32) of one percent. That means that prices will be quoted as, for instance, 99-30/32 - "99 and 30 ticks", meaning 99 and 30/32 percent of the face value. Prices can also be quoted with a "plus", meaning one sixty-fourth (1/64) of one percent or half a tick. That means that a price is quoted as, for instance, 99-30+, meaning 99 and 61/64 percent (or 30.5/32 percent) of the face value. As an example, "par the buck plus" means 100% plus 1/64 of 1% or 100.015625% of face value. Most European and Asian bond and futures prices are quoted in decimals so the "tick" size is 1/100 of 1%.


Stocks and futures

Tick size is the smallest increment (tick) by which the price of
stock In finance, stock (also capital stock) consists of all the Share (finance), shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which owners ...
s,
futures contract In finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consumpti ...
s or other exchange-traded instrument can move. The purpose of having discrete price levels is to balance price priority with time priority. If the tick is too small then too much of a preference is given to price priority meaning that market makers and the general public will have less of an incentive to post their orders well in advance since people can jump ahead of them by increasing their price by a small, virtually inconsequential, fraction. If the tick is too big then the opposite happens and time priority is given far too much of an advantage. The size of a tick is picked to basically balance those two priorities. Tick sizes can be fixed (e.g., USD 0.0001) or vary according to the current price (common in European markets) with larger increments at higher prices. Heavily-traded stocks are given smaller tick sizes. An instrument price is always a
rational number In mathematics, a rational number is a number that can be expressed as the quotient or fraction (mathematics), fraction of two integers, a numerator and a non-zero denominator . For example, is a rational number, as is every integer (e.g. ) ...
and the tick sizes determine the numbers that are permissible for a given instrument and exchange. In Europe,
Mifid Markets in Financial Instruments Directive 20142014/65/EU commonly known as MiFID 2 (Markets in financial instruments directive 2), is a legal act of the European Union The European Union (EU) is a supranational union, supranational po ...
has resulted in a variety of multilateral trading facilities (MTF) with distinct tick size regimes for the same stocks. These differences mean that
order Order, ORDER or Orders may refer to: * Categorization Categorization is the ability and activity of recognizing shared features or similarities between the elements of the experience of the world (such as Object (philosophy), objects, even ...
routing systems must be aware of every MTF's tick size regime and adjust outgoing orders accordingly. There is now an industry effort underway to harmonise tick sizes. As of 2019, the article 49 of the new MiFID II directive requires trading venues to adopt minimum tick sizes in relation to equity and certain equity-like instruments.


See also

*
Commodity tick Futures exchanges establish a minimum amount that the price of a commodity can fluctuate upward or downward. This minimum fluctuation (trade increment) is known as a tick or commodity tick. Hence, a tick is any fluctuation in the price of a security ...
*
Percentage in point In finance, specifically in foreign exchange markets, a percentage in point or price interest point (pip) is a unit of change in an exchange rate of a currency pair. The major currencies (except the Japanese yen) are traditionally priced to fou ...
(PIP) * Penny stocks


References

{{reflist Financial markets sv:Aktiehandel#Tick-size