In financial markets, the tick size is the smallest price increment in which the prices are quoted. The meaning of the term varies depending on whether stocks, bonds, or futures are being quoted.
U.S. mortgage bonds and certain corporate bonds are quoted in increments of one thirty-second (1/32) of one percent.That means that prices will be quoted as, for instance, 99-30/32 - "99 and 30 ticks", meaning 99 and 30/32 percent of the face value. Prices can also be quoted with a "plus", meaning one sixty-fourth (1/64) of one percent or half a tick. That means that a price is quoted as, for instance, 99-30+, meaning 99 and 61/64 percent (or 30.5/32 percent) of the face value. As an example, "par the buck plus" means 100% plus 1/64 of 1% or 100.015625% of face value.
Most European and Asian bond and futures prices are quoted in decimals so the "tick" size is 1/100 of 1%.
Tick size is the smallest increment (tick) by which the price of stocks,futures contracts or other exchange-traded instrument can move.
The purpose of having discrete price levels is to balance price priority with time priority. If the tick is too small then too much of a preference is given to price priority meaning that market makers and the general public will have less of an incentive to post their orders well in advance since people can jump ahead of them by increasing their price by a small, virtually inconsequential, fraction. If the tick is too big then the opposite happens and time priority is given far too much of an advantage. The size of a tick is picked to basically balance those two priorities.
Tick sizes can be fixed (e.g., USD 0.0001) or vary according to the current price (common in European markets) with larger increments at higher prices. Heavily-traded stocks are given smaller tick sizes. An instrument price is always a rational number and the tick sizes determine the numbers that are permissible for a given instrument and exchange.
In Europe, Mifid has resulted in a variety of multilateral trading facilities (MTF) with distinct tick size regimes for the same stocks. These differences mean that order routing systems must be aware of every MTF's tick size regime and adjust outgoing orders accordingly. There is now an industry effort underway to harmonise tick sizes.As of 2019, the article 49 of the new MiFID II directive requires trading venues to adopt minimum tick sizes in relation to equity and certain equity-like instruments.
In economics and finance, arbitrage is the practice of taking advantage of a difference in prices in two or more markets; striking a combination of matching deals to capitalise on the difference, the profit being the difference between the market prices at which the unit is traded. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs. For example, an arbitrage opportunity is present when there is the possibility to instantaneously buy something for a low price and sell it for a higher price.
In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets.
In finance, a bond is a type of security under which the issuer (debtor) owes the holder (creditor) a debt, and is obliged – depending on the terms – to provide cash flow to the creditor. The timing and the amount of cash flow provided varies, depending on the economic value that is emphasized upon, thus giving rise to different types of bonds. The interest is usually payable at fixed intervals: semiannual, annual, and less often at other periods. Thus, a bond is a form of loan or IOU. Bonds provide the borrower with external funds to finance long-term investments or, in the case of government bonds, to finance current expenditure.
In finance, an equity derivative is a class of derivatives whose value is at least partly derived from one or more underlying equity securities. Options and futures are by far the most common equity derivatives, however there are many other types of equity derivatives that are actively traded.
Preferred stock is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferred stocks are senior to common stock but subordinate to bonds in terms of claim and may have priority over common stock in the payment of dividends and upon liquidation. Terms of the preferred stock are described in the issuing company's articles of association or articles of incorporation.
Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the principal amount on maturity. Fixed-income securities — more commonly known as bonds — can be contrasted with equity securities – often referred to as stocks and shares – that create no obligation to pay dividends or any other form of income. Bonds carry a level of legal protections for investors that equity securities do not — in the event of a bankruptcy, bond holders would be repaid after liquidation of assets, whereas shareholders with stock often receive nothing.
A currency future, also known as an FX future or a foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price that is fixed on the purchase date; see Foreign exchange derivative. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date.
An interest rate future is a financial derivative with an interest-bearing instrument as the underlying asset. It is a particular type of interest rate derivative.
A basis point is one hundredth of 1 percentage point. The related term permyriad means one hundredth of 1 percent. Changes of interest rates are often stated in basis points. If an interest rate of 10% increased by 1 bp, it changed to 10.01%.
In finance, market depth is a real-time list displaying the quantity to be sold versus unit price. The list is organized by price level and is reflective of real-time market activity. Mathematically, it is the size of an order needed to move the market price by a given amount. If the market is deep, a large order is needed to change the price.
Security market is a component of the wider financial market where securities can be bought and sold between subjects of the economy, on the basis of demand and supply. Security markets encompasses stock markets, bond markets and derivatives markets where prices can be determined and participants both professional and non professional can meet.
The bond market is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, but it may include notes, bills, and so on for public and private expenditures. The bond market has largely been dominated by the United States, which accounts for about 39% of the market. As of 2021, the size of the bond market is estimated to be at $119 trillion worldwide and $46 trillion for the US market, according to Securities Industry and Financial Markets Association (SIFMA).
In finance, an asset class is a group of financial instruments that have similar financial characteristics and behave similarly in the marketplace. We can often break these instruments into those having to do with real assets and those having to do with financial assets. Often, assets within the same asset class are subject to the same laws and regulations; however, this is not always true. For instance, futures on an asset are often considered part of the same asset class as the underlying instrument but are subject to different regulations than the underlying instrument.
The JPMorgan Emerging Market Bond Index (EMBI) are a set of three bond indices to track bonds in emerging markets operated by J P Morgan. The indices are the Emerging Markets Bond Index Plus, the Emerging Markets Bond Index Global and the Emerging Markets Bond Global Diversified Index.
BATS Chi-X Europe is a London-based, order-driven pan-European equity exchange that has been a subsidiary of BATS Global Markets since 2011. It is a low latency, low cost alternative to exchange traded equities and exchange-traded funds (ETFs) that are listed on primary exchanges such as the London Stock Exchange, Frankfurt Stock Exchange, Euronext and OMX.
A multilateral trading facility (MTF) is a European Union regulatory term for a self-regulated financial trading venue. These are alternatives to the traditional stock exchanges where a market is made in securities, typically using electronic systems. The concept was introduced within the Markets in Financial Instruments Directive (MiFID), a European Directive designed to harmonise retail investors protection and allow investment firms to provide services throughout the EU.
Fixed-Income Relative-Value Investing (FI-RV) is a hedge fund investment strategy made popular by the failed hedge fund Long-Term Capital Management. FI-RV Investors most commonly exploit interest-rate anomalies in the large, liquid markets of North America, Europe and the Pacific Rim. The financial instruments traded include government bonds, interest rate swaps and futures contracts.
The Ukrainian Exchange was founded in 15th of May, 2008 and its operation premises are situated at 7g, Tropinina Street, Kyiv.
The Small Cap Liquidity Reform Act of 2013 was a bill that was intended to increase the liquidity on the stock market of stocks belonging to emerging growth companies. It would allow small companies to choose a tick size of $0.05 or $0.10 instead of the standard $0.01. To participate, companies would need to have stock prices of over $1.00 and revenues of less than $750 million.
S&P 500 Futures are financial futures which allow an investor to hedge with or speculate on the future value of various components of the S&P 500 Index market index. S&P 500 futures contracts were first introduced by the Chicago Mercantile Exchange in 1982. The CME added the e-mini option in 1997. The bundle of stocks in the S&P 500 is, per the name, composed of stocks of 500 large companies.