Tick size

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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.

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Bonds

U.S. mortgage bonds and certain corporate bonds are quoted in increments of one thirty-second (1/32) of one percent. [1] 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. [2] 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%. [3]

Stocks and futures

Tick size is the smallest increment (tick) by which the price of stocks, [4] futures contracts [5] 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. [6] 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.

See also

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Stock market Place where stocks are traded

A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately, such as shares of private companies which are sold to investors through equity crowdfunding platforms. Investment in the stock market is most often done via stockbrokerages and electronic trading platforms. Investment is usually made with an investment strategy in mind.

Bond (finance) Instrument of indebtedness

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds. Bonds can be in mutual funds or can be in private investing where a person would give a loan to a company or the government.

Speculation Engaging in risky financial transactions

Speculation is the purchase of an asset with the hope that it will become more valuable in the near future. In finance, speculation is also the practice of engaging in risky financial transactions in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument—rather than attempting to profit from the underlying financial attributes embodied in the instrument such as value addition, return on investment, or dividends.

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Preferred stock Type of stock which may have any combination of features not possessed by common stock

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Fixed income

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Market depth

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Bond market

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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.

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Stock Shares into which ownership of the corporation is divided

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Ukrainian Exchange

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Small Cap Liquidity Reform Act of 2013

The Small Cap Liquidity Reform Act of 2013 is a bill that is 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.

References

  1. Glossary of Fixed Income Market Terminology. Freddie Mac.
  2. Fixed Income Securities and Derivatives Handbook: Analysis and Valuation. Moorad Choudhry. Wiley 2010. p. 376
  3. Interest Rate Derivatives: Fixed Income Trading Strategies. Eurex Frankfurt AG. p.7
  4. "Understanding The Ticker Tape", Investopedia
  5. Futures Contract Specifications (Tick Values) , retrieved 26 September 2009
  6. "BATS Europe Newsletter - 10th June 2009" (PDF). BATS Europe . Retrieved 26 June 2009.