Tick Size

Tick size is the minimum price increment at which a financial instrument can trade on a specific exchange. It serves as the fundamental unit of price discovery, preventing infinite price granularity that could overwhelm order books.

In traditional finance, regulators often mandate tick sizes to maintain market stability and ensure orderly trading. In decentralized finance, protocol designers set these increments to balance liquidity depth with price accuracy.

If the tick size is too large, the bid-ask spread widens, increasing costs for traders. If it is too small, it may lead to excessive quote flickering and reduce the effectiveness of limit order books.