The smallest or minimum price increment (tick) in which the prices of tradable securities (investments, stocks, bonds, futures, etc.) are quoted. The term may have different connotations depending on the securities being quoted. A ticker size is largely determined by regulators and technological capabilities. It’s typically expressed in decimal points (e.g., $0.01 for stocks in the U.S markets, while for futures, designated tick sizes can be up to $10.00).

Broadly speaking, tick size is the smallest amount of fluctuation that the price of an asset/ investment can experience when a market moves. The tick size or the tick value is measured in monetary terms. The price is set to “freely” move upward or down on an exchange (subject to forces of supply and demand), but it always moves in multiples of the tick size.

Over time, tick sizes evolved (and do evolve time to time) in reaction to regulatory and technological factors, etc. In the early 1990s, minimum tick sizes were in 12.5 cent increments. Tick sizes were decreased to as low as 3.125 cents, after the implementation of new rules and regulations (in the U.S markets: 1998). Tick sizes became a penny with the advent of decimalization in 2001.

Tick size potentially impacts market makers’ and investors’ willingness to supply liquidity (as reflected in binding quotations and limit orders), as a result creating disincentives to specific market players to expose trading interest. For example, in markets that apply time priority as a rule, market participants can obtain order precedence at a lower cost (with a smaller or reduced tick size), and as such any participant can easily provide better quotes on the current quotations. In turn, this could disincentive certain participants due to lack of enough interest.