Price Discreteness

Price discreteness refers to the fact that asset prices can only change by minimum tick sizes, which imposes a structural constraint on price discovery. This discreteness creates a natural limit to the granularity of market data and influences the behavior of limit order books.

Because prices cannot be continuous, order flow is clustered at specific levels, which impacts execution and strategy performance. In high-frequency trading, the tick size can be a significant factor in strategy design, as it affects the probability of order execution and the cost of the spread.

Understanding price discreteness is essential for modeling the true behavior of the market and for avoiding biases in quantitative analysis of order books.