Tick size

Tick size is an important consideration in market design, as it influences liquidity profiles, bid-ask spreads, and overall trading activity. Smaller tick sizes may lead to tighter spreads, thereby reducing transaction costs for traders. In contrast, larger tick sizes can create congestion at the best bid and offer, resulting in thick order books that rarely experience upward or downward price movements.

Tick sizes can change over time due to regulatory measures or decisions made by the operator of a trading venue. For example, during the Tick Size Pilot Program initiated by the U.S. Securities and Exchange Commission (SEC) from October 3, 2016, to March 29, 2019, FINRA and various U.S. stock exchanges published daily lists of securities whose tick sizes were assigned to different test groups and adjusted accordingly.

Additionally, tick sizes can be variable, based on a predefined set of rules that derive an instrument's tick size from its price. The CME (Chicago Mercantile Exchange) supports variable tick sizes primarily for certain options instruments. Their implementation utilizes a Variable Tick Table (VTT), where each predefined code corresponds to a combination of current price and tick size. The applicable tick size is then disseminated in security definition messages as tag 6350-TickRule.

While the term "tick size" is universally applicable across all asset classes, securities traders often use terms like minimum price increment or minimum price variation (MPV) to refer to the same concept.