In the context of financial trading, a “tick” refers to a minimum change in the price of a security. This minimum movement can be either up or down.
The actual value of a tick can vary depending on the specific market and type of security. For example:
- For stocks trading at over $1 in the U.S, the minimum tick size is $0.01, whereas for stocks trading under $1, the tick size can be less than a penny.
- For futures contracts, the tick size is set by the exchange on which the contract is traded and can be different for each specific contract. For instance, one contract might have a tick size of $0.05, while another might have a tick size of $0.25.
The concept of the tick is important in trading because it helps to standardize price information and provides a benchmark for measuring price changes. It’s also relevant for traders when it comes to placing orders, calculating profits and losses, and managing risk.