Tick size
Family I · Instruments
Not to be confused with lot size, tick value, contract size.
Tick size is the minimum price movement allowed for a quoted instrument, fixed by the exchange or venue that lists it. It defines the grid on which prices can be quoted, so every bid and offer is a whole multiple of that increment. Tick size is expressed in price units, not in currency value per contract.[1]
How tick size works
An exchange sets a tick size for each instrument and may vary it by price band, product or market conditions. Quotes that are not whole multiples of the tick size are rejected by the matching engine. Because the tick size is a price increment, its monetary effect depends on the contract size and the currency of the instrument.
For example, a stock might trade with a tick size of 0.01 in its quoted currency, while a futures contract on an index might have a tick size of 0.25 index points. The tick size is not the same as the minimum order quantity, which is governed by the lot size.
Worked example
An instrument has a tick size of 0.25 and a contract size of 50 units per contract. A price move of one tick changes the value of one contract by 0.25 × 50 = 12.50 in the quote currency.
Related terms
Tick size is often confused with tick value, which is the money amount that one tick movement represents for a given position. It is also distinct from lot size, the minimum tradable quantity, and from contract size, the quantity of the underlying represented by one contract.
Often confused with
- lot size
- Lot size is the minimum quantity that can be traded in one order, whereas tick size is the minimum price increment; the visible sign is that lot size is expressed in units or contracts and tick size in price units.
- tick value
- Tick value is the monetary worth of one tick movement for a position, while tick size is the price increment itself; the visible sign is that tick value is a currency amount and tick size is a price amount.
- contract size
- Contract size is the quantity of the underlying represented by one contract, not the price increment; the visible sign is that contract size appears as a number of units, shares or barrels, while tick size appears as a decimal price step.
See also
References
- ↑ Contract specifications published by the broker or exchange for each instrument. Lot sizes, tick sizes and pip values are set per instrument and differ between venues; read the specification for the symbol you trade.