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Tick size is the smallest possible movement in price a stock or security can experience during trading. This can vary between financial markets and security types. In some markets, tick size also changes depending on the volume and value of trading. Discussions about price movements are often reported in tick sizes for the convenience of investors and other interested members of the public. Historically, market movements were tracked on a ticker tape that reported price movements up or down with various stocks and securities throughout the trading day.
Ticks were one given in terms of points and fractions, like a whole point, half, quarter, and so forth. Many markets today use a decimal system. A tick size may be 0.1, 0.01, or some other decimal unit, depending on the market. If a security trades at 6.035 in a market that uses a tick size of 0.001, a change in price can register at 6.036, when it has moved up by a tick, or 6.034, when it has moved down. Market publications indicate the tick size for reference.
There are three different kinds of ticks. A zero tick indicates no change in price; the value of the security has not risen or fallen since the last reported value. A plus tick shows an upward trend in price, and may also be known as an uptick. Minus ticks are just the opposite and are called downticks in some markets. When financial publications report upticks or downticks in a given security price, it is important to look at the time period they are reporting on. A small uptick over the course of a half hour could be a hiccup, while a steady upward trend over the course of the day may be more significant.
Markets use tick size in a number of ways. In addition to helping investors track movements of stocks and securities, it can also be used to enforce certain trading rules. In many markets, specific types of trades may only be allowed during set market movements, or may be forbidden during others. For example, many markets only allow short selling during an uptick. This prevents exploitation of the market by unscrupulous traders and can also prevent a panic, as might happen in the wake of a series of downticks that unsettle investors.
Investors who monitor international markets may need to follow tick size in several different contexts. It is important to know what the size of the increment is and how often the market updates its reporting. This information can be critical for making investment decisions.
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