Definition
Tick Size
Tick size is the minimum price increment by which a security's price can move on the exchange, setting the granularity of quotes and influencing spreads and liquidity.
Indian exchanges specify tick sizes (commonly ₹0.05 for many equities, with finer ticks for some low-priced or specific instruments). A smaller tick allows tighter bid-ask spreads and finer price discovery but can reduce the incentive to provide liquidity at each level.
Tick size interacts with market making and queue dynamics: a larger tick widens the minimum spread, rewarding liquidity providers, while a smaller tick benefits aggressive takers. Exchanges calibrate tick sizes to balance price-discovery precision against the depth and stability of the order book.
Related terms
- Market Making (Algorithmic)Algorithmic market making is the automated, continuous posting of buy and sell quotes for a security to provide liquidity, earning the bid-ask spread while managing inventory and adverse-selection risk.
- Bid-Ask SpreadThe bid-ask spread is the difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask), representing a core implicit cost of trading and a measure of liquidity.
- Limit OrderA limit order specifies the maximum price a buyer will pay or the minimum a seller will accept, executing only at that price or better and resting in the order book until it can be filled.
- Order Book ImbalanceOrder book imbalance is the difference between resting buy and sell volume at or near the top of the book, used as a short-term signal of likely price direction.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.