Tick Size
Tick size is the minimum permissible price movement for a security on a stock exchange, set at Rs 0.05 (5 paise) for most equity shares on NSE and BSE, representing the smallest increment by which an order price can differ from a previous price.
Every financial market has a granularity floor — a minimum unit of price movement below which quotes cannot be meaningfully differentiated. This is the tick size. In the Indian equity market, the standard tick size is Rs 0.05 (five paise) for most shares listed on NSE and BSE. This means a share currently priced at Rs 100.00 can next trade at Rs 99.95 or Rs 100.05, but not at Rs 100.03.
Tick size choices involve a careful trade-off. If ticks are too large relative to the share price, the bid-ask spread (the gap between the highest price a buyer will pay and the lowest price a seller will accept) is artificially wide, imposing a hidden cost on traders. If ticks are too small, order books become crowded with microscopically different quotes that clutter the book and can be exploited by high-frequency traders to place and cancel orders rapidly without genuine trading intent.
NSE uses a tiered tick size system for certain instruments. For shares with very low absolute prices (below Rs 10, for instance), a 1 paise tick size may apply. For some securities in the SME segment, different tick sizes may be in effect. Derivatives contracts have their own tick sizes — for Nifty 50 futures, the tick size is Re 0.05 per index point (translating to Rs 3.75 per lot given the lot size of 75 units).
For the retail investor, tick size primarily matters when placing limit orders. Understanding tick size helps in setting precise limit prices. If you want to be at the front of the buy queue at Rs 500.00 but not at Rs 500.05, placing a limit at Rs 500.00 puts you in competition with all other buyers at that level, ranked by time priority. There is no point in attempting to place an order at Rs 500.01 because the system will reject it as not conforming to tick size rules.
Tick size also affects the calculation of contract values in derivatives. The profit or loss on a futures position per price move is: Lot Size × Tick Size = Profit or Loss per tick. Understanding this helps size derivative positions in relation to one's risk tolerance.
SEBI and exchanges periodically review tick sizes and may revise them for specific securities where the existing tick causes problems in price discovery or market quality.