financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial marke ...

, 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 () of one percent. That means that prices will be quoted as, for instance, "99-30" (read as "99 and 30 ticks"), meaning 99 and percent of the face value. Prices can also be quoted with a "plus", adding one sixty-fourth () of one percent or half a tick. That means that a price is quoted as, for instance, "99-30+", meaning 99 and percent (or percent) of the face value. As an example, "par the buck plus" means 100% plus 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 of 1%.

Stocks and futures

Tick size is the smallest increment (tick) by which the price of

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

futures contract In finance, a futures contract (sometimes called futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The item tr ...

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 of two integers, a numerator and a non-zero denominator . For example, is a rational number, as is every integer (for example, The set of all ...

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), is a directive of the European Union (EU). Together with Regulation No 600/2014 it provides a legal framework for securities markets, investment intermediari ...

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: * A socio-political or established or existing order, e.g. World order, Ancien Regime, Pax Britannica * Categorization, the process in which ideas and objects are recognized, differentiated, and understood ...

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.

References

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

Bonds

Stocks and futures

See also

References