What Is Tick In Trading & Why it Matters?

When watching the stock market, did you ever wonder - ‘Why do stock prices continuously change? Well, first off, the tiny change in stock price - going up or down - is called a “tick”. It is the smallest quantifiable change in value of a stock, fueled by real-time trades. Each tick reveals a story: when demand spikes, prices rise; when investors sell, prices fall. These ongoing changes impact strategies, shape trends, and keep the markets moving.

Tick size refers to the minimum price movement of a security - stock, ETF, index, or derivative, on the stock exchange. For example, if the smallest permitted change in a stock’s price is 0.01 and its currently trading at ₹75, then the next possible change would be ₹75.01 (if price jumps up) or ₹74.99 (if it drops). That ₹0.01 variation is called its tick size. The tick size varies depending on the security type, its price or the company's market capitalization.

Ticks are tiny but potent indicators of the direction the market is taking, so think of them as the heartbeat of trading. They help traders analyze market trends, understand investor sentiments, and predict future price movements. Ticks also state the price increment between the bid (the highest price a buyer is willing to pay) and the ask (the lowest price a seller is willing to accept). This is important information to plan your entry or exit into the market.

Let’s do a deep dive on tick and tick size

• Smallest price variation: Think of tick as the least possible price change a financial instrument can witness.

   

• Varies by security & asset: Tick sizes are not standardized. They vary by asset type and even stock to stock, often based on market capitalization.

• Regulated by authorities: The tick size of a security is decided by the respective stock exchange like NSE or BSE.

• Price of security vs tick size: Tick sizes of stocks with higher prices are higher than those with lower stock price.

• Adjust with market: They aren't static and are fine-tuned periodically to reflect current market conditions.

• Effects on trading profitability: Tick size affects the traders’ profitability as well as their entry and exit.

• Impacts liquidity: Smaller tick sizes usually mean better liquidity (easier buying and selling), while larger ones can reduce it.

When the tick size is small, prices can move in tiny steps, boosting the liquidity of that stock or security and making the market more efficient. In contrast, a larger tick size forces prices to jump in bigger steps, dampening the security’s liquidity and consequently increasing the risk for traders.

Tick size affects trading costs as well. The smaller the tick size, the narrower the spread in the bid-ask would be, and subsequently, the lower the transaction costs. The greater the tick size, the wider the spread becomes, which would hike the costs of trading.

For active traders, tick size plays a key role in liquidity, position sizing, and risk and rewards. A larger tick size means bigger profit or loss with each price change, prompting traders to adjust their position sizes accordingly.

Traders often favor stocks that have small-sized tick size because their risk is minimal while their liquidity is higher. It makes it convenient for the traders to enter and exit their positions, without significantly affecting their portfolios. However, very small tick size induce noise in the markets while large ones distort the balance of supply and demand.

Having said that, an ideal tick size depends on your trading strategy and goals.

First, let's understand what a bid-ask spread is. A bid-ask spread refers to the margin between the maximum price that the buyer would like to pay and the minimum price that the seller would be willing to accept in the market. The tick size of a stock directly affects its bid-ask spread.

If a tick size is small, the bid-ask spread becomes narrow, and there are more price levels for traders to enter and exit. Moreover, it makes trade more cost-effective. On the other hand, a larger tick size broadens the bid-ask spread which indirectly reduces the trading activities.

For instance, if the ₹0.05 tick size stock trades on NSE, then for a last traded price of the stock being ₹87.05, the appropriate bids would be ₹87.10, ₹87.15, ₹87.20, ₹87.25, ₹87.30, ₹87.35, and ₹87.40. In this case, because the bid-ask spread is thin, there are many entry and exit points.

On the other hand, another stock whose tick size is ₹1.00, is currently trading at ₹95. Then the best trading price can be ₹96, ₹97, and ₹98. But, due to a larger tick size, the bid-ask spread is wider.

Tick size refers to the smallest possible price fluctuation in a financial product. Whereas, tick value is the monetary worth of a particular tick size. It determines a single price increment for each contract, resulting from such movement.

For instance, ABC stock has surged from ₹43.05 to 43.10. The price increment of 0.05 is the tick size. But say, the contract size of the stock is 1000 shares. Then, the tick value is ₹50 (₹0.05 * 1000).

In India, the tick sizes are decided by the respective stock exchanges. The tick sizes are defined to ensure smoother price movements and liquidity management in the stock market.

Here’s the tick size for stocks and stock futures*, as defined by NSE, depending on their stock price:
 

So, if a stock is priced at ₹200, the smallest possible price movement is ₹0.01. So, the next possible price would be ₹200.01 if it increases or ₹199.99 if it decreases. On the other hand, if a stock is priced at ₹22,000, its tick size is ₹5. This means the next possible price would be ₹22,005 if it rises or ₹21,995 if it drops.

The tick size for index futures contracts is as follows*: 
 

*Data as of March 2025. The exchange reviews the tick size every month and can change it.

“Interesting fact”
Did you know until May 2024, all stocks on NSE had a tick size of 0.05, however, on BSE the stocks that traded under ₹100 maintained tick size of 0.01. Since June 2024, NSE also brought down the tick size to 0.01 for stocks trading below ₹250. 

Leveraging tick size effectively can refine your trading strategy and enhance your profitability. Here are some key insights you can use as a day trader or a high-frequency trader:

• Focus on stocks with smaller tick sizes, as they offer more liquidity, predictable price movements and opportunities to profit from minor fluctuations especially for strategies like swing trading.

   

• Be cautious with large tick-size stocks, as they carry higher risks.

   

• Smaller tick sizes allow for multiple trades at lower costs, as increased market participation ensures greater liquidity.

   

• Utilize technical indicators to assess market trends and trading software to execute bids within fractions of a second.

Q. How does tick size affect trading profits? 
A. Tick size influences your stock’s trading cost, profitability, frequency, strategies, and market quality. Smaller tick sizes have narrow bid-ask spreads which reduces the security’s trading cost. Thus, it is favorable for scalpers and high-frequency traders providing them opportunities to make gains through more frequent trades on small price movements with obvious entry and exit points.

Conversely, larger tick sizes raise transaction costs by widening spreads, reducing trading frequency, and increasing profit margins per trade, but they may also amplify market volatility due to larger price swings.

Q. Why do tick sizes vary between exchanges? 
A. There is a different tick size for every stock exchange. This variation arises from different regulatory frameworks applicable to various exchanges. Also, it differs due to the varying structure of the stock markets. Further, the tick size can vary for each kind of instrument and every stock, based on the market capitalization of the company.

Q. Can traders customize tick sizes for specific trades? 
A. Traders cannot customise the tick size of the stocks as they are decided by the exchanges and the regulator. However, you can choose stocks that align with your tick size preference.
 

Tick size is the lowest movement allowed in the price of a listed security – up or down. Different financial products have different tick sizes and within the same asset class also the tick size varies depending on the price of the stock, or in some cases its market cap. A smaller tick size if often preferred by traders as it boosts the liquidity of that stock and also allows tighter bid-ask spread.