Tick

Key Takeaways
* A tick is the smallest incremental price movement a security can make on an exchange.
* Since decimalization, most U.S. stocks trading above $1 move in one-cent ticks ($0.01).
* Tick sizes vary by market and instrument (e.g., E‑mini S&P 500: $0.25; gold futures: $0.10).
* A 2016–2018 SEC tick size pilot that increased ticks for 1,200 small‑cap stocks found larger ticks reduced liquidity and raised trading costs.

What is a tick?

A tick is the minimum upward or downward change in a security’s price on a given exchange. It’s set in the local currency or measurement used by that market and defines the smallest increment by which prices can move.

Brief history

Before decimalization in April 2001, many U.S. stocks quoted in fractions (commonly 1/16 of a dollar, or $0.0625). Decimalization changed quotes to cents, narrowing bid‑ask spreads and improving price discovery, but it also reduced some market‑making profitability.

How ticks work (examples)

Tick sizes differ by instrument and exchange:
* Stocks (U.S., > $1): $0.01 tick
* E‑mini S&P 500 futures: $0.25 tick
* Gold futures: $0.10 tick

Example: If an E‑mini S&P 500 contract is $20.00 and its tick is $0.25, the next allowable price move is $20.25; a $20.10 quote would not be permitted.

The SEC tick size pilot (2016–2018)

Purpose: Test whether wider tick sizes would encourage broker research and greater investment in small‑cap stocks.

Design: Increased the minimum tick from $0.01 to $0.05 for 1,200 selected small‑cap securities for two years.

Findings:
* Larger tick sizes tended to reduce trading activity and liquidity.
* Small‑spread stocks experienced price declines in the range of about 1.75%–3.2%.
* The pilot imposed significant costs on investors (estimates ranged roughly $350–$900 million) and did not produce the intended boost to small‑cap liquidity.

Tick as a movement indicator

Beyond price increments, “tick” describes the direction of a trade:
* Uptick — a trade executed at a price higher than the previous trade.
* Downtick — a trade executed at a price lower than the previous trade.

Regulatory note: The original uptick rule (1938–2007) restricted short sales unless the last trade was an uptick. A modified rule (Rule 201, introduced in 2010) imposes short‑sale restrictions only after a stock falls 10% or more in a trading day; thereafter short sales are allowed only above the current best bid.

Common questions

• What’s the difference between a tick and a point?
• A point is a larger price change (usually one unit to the left of the decimal). A tick is the smallest increment to the right of the decimal. Example: $50.00 → $51.00 is +1 point; $50.00 → $50.01 is +1 tick.
• Are ticks and pips the same?
• A pip serves the same role in forex markets as a tick does in other markets: the smallest whole unit of price movement for an exchange rate.
• What is “time and tick” in trading?
• It’s a method for determining a day‑trade margin call that counts only open positions when calculating obligations.

Bottom line

A tick defines the minimum price movement for a security and varies across markets and instruments. While smaller ticks (decimalization) narrowed spreads and aided price discovery, changes to tick sizes can materially affect liquidity, trading costs, and market behavior—evidenced by the SEC’s tick size pilot for small‑cap stocks. The term also describes trade direction (uptick/downtick) and factors into short‑sale regulations.