What Is a Tick in Trading? Tick Size and Market Effects

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A tick is the minimum price increment a security can move on the market where it trades. If a stock’s tick size is one cent, its price can go from $40.00 to $40.01 but not to $40.005. On a stock chart, every price you see is a whole number of ticks. Exchanges and regulators set tick sizes, and they differ by asset and market.

Traders also use “tick” in a second sense: a single price change or trade. An uptick is a trade at a higher price than the one before, and a downtick is a trade at a lower price.

How tick size works

Tick size is a fixed increment in the currency of the market where the instrument trades. Every bid, offer and trade price has to sit on that grid, so a market maker that wants to improve on a competitor’s quote must move by at least one full tick.

Narrow ticks let quotes sit closer together, which tends to tighten bid-ask spreads and improve price discovery. Wide ticks give liquidity providers a larger guaranteed margin between bid and ask and tend to concentrate more orders at each price level. When U.S. stocks moved from sixteenths to pennies, spreads narrowed for investors, and market making became less profitable and riskier for the firms doing it.

Tick sizes across markets

Stocks. In the U.S., stocks priced at $1 or more are quoted in one-cent increments. Under Regulation NMS Rule 612, stocks below $1 may be quoted in increments as small as $0.0001.

Futures. Each contract specification sets its own minimum tick. The E-mini S&P 500 future moves in 0.25 index points, and gold futures move in $0.10 per troy ounce. A price on the E-mini can go from 5,000.00 to 5,000.25 in one tick. It cannot print at 5,000.10, because that is less than the minimum increment.

Forex. Currency traders usually speak in pips rather than ticks. For most pairs a pip is the fourth decimal place (0.0001). For yen pairs it is the second decimal place (0.01). Many brokers quote one more decimal, called a pipette or fractional pip, so the smallest quoted move is one-tenth of a pip. In trading platforms such as MetaTrader, a “tick” usually means each new price update the broker sends, not a fixed increment.

Bonds. U.S. Treasuries have traditionally been quoted in 32nds of a point, where a point is 1% of face value. One tick of 1/32 on $1,000,000 face value is worth $312.50.

Calculating tick value

Tick size tells you how far the price can move. Tick value tells you what that move is worth to your position.

Tick value = tick size × contract multiplier (or number of units held)

Profit or loss = number of ticks moved × tick value × number of contracts

The E-mini S&P 500 has a $50 multiplier, so one 0.25-point tick is worth 0.25 × $50 = $12.50 per contract. A standard gold future covers 100 troy ounces, so one $0.10 tick is worth $10.

Hypothetical example: A trader buys 3 E-mini contracts and the price rises 8 ticks (2 index points). The gain is 8 × $12.50 × 3 = $300 before commissions and fees, and the same move against the position would be a $300 loss.

For stocks the arithmetic is simpler. One tick on 100 shares is 100 × $0.01 = $1. A stock moving from $25.00 to $25.50 has moved 50 ticks, worth $50 on that position.

Traders often set stops and targets in ticks, such as “risk 10 ticks to make 20.” That becomes a dollar figure only once you multiply by tick value and size, a conversion a position size calculator does for forex positions.

Ticks as price changes: upticks, downticks and tick charts

• Uptick: a trade at a price above the previous trade.
• Downtick: a trade at a price below the previous trade.
• Zero tick: a trade at the same price as the previous one.

A tick chart builds each bar from a fixed number of trades, for example 233 or 500, instead of a fixed amount of time. In busy periods bars form quickly. In quiet periods a single bar may take a long time to complete. Some traders use this to see activity that time-based bars blend together.

Tick data is the full record of individual price updates or trades. In spot forex, “tick volume” counts price changes, not traded contracts or currency amounts, because there is no central exchange reporting total volume.

The NYSE TICK index (often shown as $TICK) subtracts the number of NYSE stocks whose last trade was a downtick from the number whose last trade was an uptick. It is a short-term breadth reading, not a measure of tick size.

Regulation and tick size

Decimalization

U.S. exchanges quoted stocks in fractions for most of their history. The SEC ordered the move to decimal pricing, and by April 2001 stocks were trading in cents. The minimum increment fell from $0.0625 to $0.01.

The Tick Size Pilot Program

In the mid-2010s, some market participants argued that the one-cent tick made small-company stocks unprofitable for brokers to research and support. The SEC approved a two-year pilot in 2015. It ran from October 2016 to 2018 and placed about 1,200 small-cap stocks, with market capitalizations of $3 billion or less and lower average trading volume, into test groups quoted and, in some groups, traded in $0.05 increments.

The hoped-for boost in research coverage and liquidity did not materialize. Analyses found higher trading costs, price declines of 1.75% to 3.2% for affected stocks with narrow spreads, and estimated investor costs of $350 million to $900 million. The wider ticks were not made permanent.

The uptick rule

The original uptick rule, in place from 1938 to 2007, allowed short sales only on an uptick or zero-plus tick. In 2010 the SEC adopted Rule 201, an alternative uptick rule. Once a stock falls 10% or more from the prior day’s close, a circuit breaker triggers: for the rest of that day and the next, short sales are allowed only at a price above the current national best bid.

Tick vs. point vs. pip

A point equals a tick only when the instrument’s tick size is one full point. On the E-mini S&P 500, one point is four ticks. A pip resembles a tick, but it is a quoting convention, and brokers that quote fractional pips allow moves smaller than one pip.

Limitations of thinking in ticks

• Tick counts aren’t comparable across instruments. Ten ticks on the E-mini is $125 per contract. Ten ticks on 100 shares of stock is $10. Always convert to money.
• Tick size says nothing about how often prices change. A one-cent stock can sit still for minutes or change price many times a second, depending on trading activity.
• A price can gap past many ticks at once. Stop orders measured in ticks trigger at the stop price but can fill several ticks away when the market jumps.
• Definitions vary by context. “Tick” can mean the increment, one trade, one platform price update or a breadth index, so a figure labeled in ticks needs its context.

FAQs

The Bottom Line

Anyone who trades futures, stocks, bonds or currencies needs to know both the tick size and the tick value of each instrument. A move stated in ticks only shows real risk after it is multiplied by tick value and position size, since ten ticks can mean $10 on one position and $125 on another. Stops measured in ticks can still fill several ticks away when prices gap.