Tick size is quite relevant in the stock market context. Generally, tick size reflects the minimum price change among different bids and offer prices of a traded security on an exchange platform. The main focal point of the article will be on Tick Size and Tick Value. Apart from this, we will describe NSE, and BSE tick sizes separately.
What is Tick Size and Tick Value?
A minimum price fluctuation, known as “Tick” or in simple words, Tick size is the minimum gap between two consecutive prices (bids and offer prices). The smallest price movement of security is called the tick size. Depending on the asset being traded on an exchange, each tick of movement is worth a specific amount of money, known as Tick Value.
Tick Size of Different Markets
NSE (National Stock Exchange)
In NSE, the minimum amount that shares can move higher or lower is Rs. 0.05. This means the tick size is 5 paise. Suppose, the last traded price of a stock is 100, the next 5 bid prices of the stock should be Rs 99.95, Rs 99.90, Rs 99.85, Rs 99.80 and Rs 99.75. Here, the bid price cannot be 99.87 or 99.94.
BSE (Bombay Stock Exchange)
In the Bombay Stock Exchange also the least moving amount (higher and lower) is Rs. 0.05 paisa. So, the tick size is 5. For example, Reliance is Rs.1330.90, so the next 5 bids will be Rs.1330.85, Rs.1330.80 and so on.
Unlike, NSE and BSE, in the commodity market (MCX or Multi Commodity Exchange) tick size differs with different commodities. A list is attached below:
Here, I have given the list of all commodities along with the tick size. As you can see maximum commodities belong to the tick size 0.05 and 1. Few of them have a 0.25 tick size. This indicates each commodity has a different capability of minimum price change.
We have taken the above attachment from the NSE site. It shows futures and options INR pairs. As it reflects the Tick size for all INR is Rs.0.25. In all the segments whether it is USDINR, EURINR, GBPINR, or JPYINR.
Importance of Tick size
Generally, the stock exchange determines the tick size, based on the type of underlying security. Let us point out the main importance of tick size below:
- In the financial market, every bit of price is important. Especially for scalping traders. At this point high and low tick price matters for quick profit booking.
The tick size refers to the minimum price increment between consecutive trades and it can vary depending on the exchanged traded futures contract. The corresponding value for each new price level is referred to as a ‘tick value’, the certain cash amount associated with one single move in price by one minimal unit (i.e., a specified number of shares or financial instrument).
A Tick Size represents the smallest permissible conversion between two successive values within a given category of trading i.e, 1 point movement for every ‘x’ units of recapitalization – stocks, bonds, derivatives etc., For example: If the Indian stock market specifies that stock prices should not go beyond 2 decimal points(0 Decimal Places), then here one Tick would mean movement by Rs 0/01 which forms to be 1 point /tick size.
Point Value refers to how much money you gain or lose when Unit Price changes by specific increments called Ticks; both these terms affect your buying/selling power as they decide position sizing limits & other such details related to trading accounts. You can calculate it using the following formula: Point Value = Futures Contract Price * Tick Size*Contract Multiplier.
To find out what one single Tick means in terms of actual money flow we use an easy equation –> Cash Flow per One Single Move (Tick) In Prices = individual security’s Contract Multiplier x its Minimum Hourly Fluctuation (tick Size). This calculation determines the total amount needed from the trader’s margin balance making sure their Leverage rate stays well within regulations set forth by exchange authorities.
In conclusion, Tick size and tick value are two key components to consider when trading stocks. The tick size is the minimum possible increment of any stock’s price movement, whereas the tick value is a unit of measurement associated with each tick that determines dollar profit or loss. As such, understanding these concepts can help you make more informed decisions regarding your investments and ensure you can get the most out of them.