What is Tick Trading?
Tick trading is among the stiffest and fastest trading strategies that the current market uses. But what does that actually imply?
Simply put, a tick in the financial world is the tiniest unit of movement of a trading instrument, i.e. a stock, futures contract or even a currency pair. The principle of tick trading is to profit from these small movements in price, and they can be within a few seconds or even fractions of a second. Using an example, the shift of a stock that goes up from 150.05 to 150.10 has a movement of 0.05, and thus, this is a tick. This micro-movement allows tick traders to buy and sell a trade in a short period, so that they could have several small profits that, when accumulated, could be worth a lot.
Key Takeaways
- Tick trading utilizes price movements that are the smallest possible (often defined by your broker). This trading type allows traders to take small, quick, frequent trades highly dependent on price movement in high volume markets allowing them to profit quickly.
- Tick size in tick trading is the minimum amount by which a price can physically change, while a tick value is the monetary value of the tick size change in a specific asset; both are valuable when deciding trades and implementing risk management.
- Tick charts, or tick data, is based on the number of trades, therefore is a much better way of capturing the real-time momentum of market activity as it moves away from the limitations of time.
- Scalping, momentum and range trading are all tick trading strategies that are popular with successful tick traders requiring discipline, precise & quick decisions.
- Market size and liquidity affect trading in tick trading greatly; larger & liquid markets provide better opportunities as the price spread is tighter and quicker price movements occur.
- Tick trading is data driven and fast paced but is not appropriate for a new trader, however if effective tick trading is supported by the right technology, risk management and practice it can be very successful.
What is Tick Size?
The smallest price change a trading instrument can make on an exchange is termed as tick size. It is the minimum difference between the two prices on a trading chart. As an example, the tick size of a stock of ₹0.05 paise is a term indicating that the price shall fluctuate only between ₹100 and ₹100.05, then to ₹100.10 and so on; and it can not move by a small change such as ₹0.01
The role of tick size in tick trading lies in the fact that it is what deals with the frequency of the price changing, or rather being able to change, and that is precisely what the tick traders dwell upon. With a smaller tick, additional price points can be traded in between each other, which could lead to more opportunities for making quick and small profits.
Origins of tick trading
The emergence of trading in ticks can be traced down to the emergence of electronic trading systems and algorithmic trading strategies. When financial markets were increasingly digitalised during the late 90s and early 2000s, as in India it changed after the scam 1992 traders started paying attention to price changes not only on longer time frames, that is, on the hour or on a day, but also to changes that occurred on the short-duration horizon, that is, changes that occurred in seconds or even in milliseconds. This transitioned into high-frequency trading, and tick trading was inherent in such a setup.
Originally reserved for institutional traders and hedge funds who can afford ultra-high-performance systems and direct market data feeds, tick trading was later introduced to the retail traders with the help of high-performance charting products, faster internet, and real-time data subscription offerings. In modern times, it is a small-scale but potent method employed by those who want to make money off the slightest fluctuations of prices in highly liquid markets.
How does a tick work?
The tick is the lowest price change in a trading instrument such as a security, a futures contract or a currency pair. It exhibits the variation of one price to another. Each time the price of a certain asset changes by this minimal value, one way or another, it is considered one tick.
To give an example, consider that the tick value of a given stock is ₹0.05 INR. In case the stock increases 10 paisa (in this case, 0.05), this is known as one tick. In the event that it advances to ₹150.10, then it would be another tick. Such small moves occur during trading days and are sometimes made in a second, and the tick traders take advantage of this to make a very quick decision to buy and sell.
Every tick might be a profit (or a loss), depending on the strategy of the trader. The idea is to use the opportunities presented by numerous little adjustments rather than the unpredictable use of large price changes. This way, ticket trading is a trade of pace, accuracy, and timing.
Historical Context of Tick Size
Earlier, a stock price on an exchange was also traded in fractions, e.g. a dollar could be 1/8 or 1/16. This system arose due to old trading traditions that gave out prices in parts of a Spanish dollar. However, with the modernisation of markets and the advent of electronic trading, fractional pricing lost its relevance.
During the early 2000s, most world exchanges, such as the U.S. and Indian exchanges, switched to decimal pricing, with tick sizes specified using small homogeneous units, e.g., ₹0.05 Indian rupees or 0.01 U.S. dollars.
It was not just a technical upgrade. It introduced higher price transparency, narrower spreads (the difference between prices of buying and selling), and exposed more high-frequency trades such as tick trading. In smaller tick sizes, traders were able to enter and exit positions more accurately, and so tick trading thrived in liquid markets where there was high traded volume.
How to manage tick size effectively
Managing tick size is crucial for anyone using tick trading strategies. Since tick size affects entry and exit precision, trading costs, and profit margins, understanding how to work with it can make a huge difference. Here are some key ways to manage tick size effectively:
1. Understand the Tick Size of Your Instrument
The exchange determines the tick size on every stock or futures contract. This must be looked every time before entering trades, what will be good on one asset might not apply to another.
2. Pick extremely liquid instruments
The most suitable markets to trade in are high-volume markets. The greater liquidity, the tighter spreads and ticks, providing you with more possibilities to make trading.
3. Apply Advanced Charting Tools
The platforms with tick charts (there are those instead of the common time-based charts) enable you to keep track of price change by a single tick. This will help you understand more about the microstructure of the market, as well as price behaviour.
4. Have Realistic Profit Goals
This means that you should capitalise on getting small profits over a period of time, instead of just waiting to make big moves as your strategy, because that is your floor price gain.
5. Look Out for Overpayment and Slippage
Small fees charged by a broker, tax, or delay in execution can prohibit your profit when you are trading on the tick level. Orders should be placed with the low-fee and quick execution brokers.
6. Backtest strategy: Your strategy
Try historical tick data to test your tick trading strategy before going live. This assists you in knowing how the tick size can affect the results in an actual market scenario.
Why is the tick size important in the market?
The term tick size may appear to be a minor technical term, but it is one that the market largely depends on in its work.
It finds out how low the prices of an asset can move and this impacts all aspects including liquidity not to mention the trading strategy. In case of a small tick size, then the prices tend to change in a smoother and more frequent manner.
This further produces narrower ranges between the prices of buying and selling, and easier entry and exit positions at very low costs for the traders.
Conversely, huge tick size may cause broader spreads that raise the cost of trading and decrease the number of prices in the order book.
In such strategies as tick trading the size of a tick may be essential, as it determines the minimal profit (or loss) a trader could realize. When the tick size is smaller, increased trading opportunities exist particularly in those markets that are highly liquid.
The overall behaviours of the market are also influenced by tick size. Occasionally it is adjusted by regulators and exchanges to manage volatility, or to enhance price discovery.
The point is that the tick size is not merely a technical parameter, but it is an important factor that defines how trades will be executed, how prices will develop, and how the strategies will work in real life markets.
Tick trading strategies
Tick trading is highly sensitive in terms of decision-making and precision. These are some of the best and common strategies ever used by tick traders:
1. Scalping Strategy
One of the most popular measures of tick trading is scalping. Traders do dozens or hundreds of trades in a day, and profit out of each tick. It is all about volume and haste as opposed to huge profits in one trade.
2. Momentum Tick Trading
With this strategy, the traders are trading to follow the short-term price action. When the price ticks steadily upwards or downwards with a heavy volume, the trader quickly enters fast into the trend quickly and expects to get even a few ticks to take profits and move out fast. It functions best in fashion markets.
3. Tick Trading
In this approach, discovering support and resistance regions and dealing within that range is carried out. The buyers purchase at the bottom and sell close to the top, gaining on the movements of the ticks, which will tend to bounce in a zone of known trackable prices.
4. Tick trading in the news
Tick traders tend to act when market moving news come. When a quick announcement leads to a rapid increase in the price movement, traders plants on that volatility by opening and closing trades in the tick-by-tick responses.
5. Algorithmic Tick Trade
Experienced traders can program trading bots or algorithms to automate their tick approach. They search markets in real time to detect tiny opportunities to enter a trade more quickly than a human being ever would, a perfect fit in high-frequency tick trading.
How to Read Tick Charts – Step by Step
At first, a tick chart may appear confusing, but after grasping the concept, it becomes an effective axis of high-speed strategies such as tick trading. This is the step-by-step procedure of how to read the tick charts:
Step 1: Understand What a Tick Chart Is
The time-based charts open a new candle every few minutes, but on a tick chart a new bar is created after a specific amount of trades (ticks), such as every 100 or 500 transactions. It is not about time, but activity on the market.
Step 2: Pick the Appropriate Tick Setting
Choose a tick interval that suits your kind of trade.
To scalp or to use in fast markets, smaller tick sizes (e.g. 50 or 100 ticks).
To slow down or to increase the panorama, experiment with 500 or 1000 ticks.
The lesser the number of ticks, the more frequent you see the movement in the market.
Step 3: The Candlesticks Reading
Every single candlestick or bar indicates the open, high, low, as well as close of the particular number of trades. These bars will enable you to identify the patterns, tendencies or any extreme volumes on a real-time basis.
Step 4: Monitoring of Breakouts/Reversals
To name a couple of examples, tick charts are excellent when used to anticipate a rapid breakout or reversal prior to its individual appearance on the standard charts. Identify the patterns, such as double bottom or flags, support/resistance reaction.
Step 5: Add In Volume and Order Flow
Confirm using volume overlays or order book information. Advancing on a well-gapped price on a tick chart regularly indicates a greater gain in momentum, which is a major indicator in making tick trades.
Step 6: Use a Demo First
Tick charts change at a very fast rate. Train your eyes to react fast without being hurried about your decisions by practicing them in a demo environment.
Tick Size vs Tick Value
While they are often thought to be the same, tick size and tick value are two different concepts in trading and their importance in tick trading cannot be overstated especially when determining profit, risk, and precision of entries/exits. Let’s take a look at the differences between tick size and tick value. If you are trying to get familiar to the terms, the definitions below should help.
Tick Size
Tick size is the smallest price movement a trading instrument can make on an exchange. Tick size is defined by the exchange and will vary based on the asset being traded. For example, if the tick size for a stock is ₹0.05, it means that the stock’s price can only move in multiples of ₹0.05: ₹150.00 → ₹150.05 → ₹150.10, etc.
Tick size will help create a consistency in price motion, and has an impact on how often prices can change. A smaller tick size allows for a greater degree of movement – this is favourable to short-term strategies, like tick trading.
Tick Value
Tick value is the monetary value of one tick movement. In other words, the tick value tells you how much money you gain or lose when the price moves by one tick. Tick value is dependent on the size of your position (units/contracts) and tick size.
For example, if you are engaging in a futures contract where each tick is worth ₹10, one tick move is a gain or loss of ₹10.
Psychological Impact of Tick Size on Traders
Psychological challenges, especially if the trader is constantly failing at a few trades and feeling like they haven’t shown their skills yet. If they keep getting frustrated and trying to “learn” how to trade with the weirder order book, they may even lose confidence in their plan altogether.
Some well-seasoned tick traders are so accustomed to quick price movements that they can be scared of bigger tick movements. It may take each trader some time to figure out what their own level of comfort is, depending on the tick size. Any trader trading a non-standard frequency of ticks risks damaging their psychological state and performance than they are ever likely to improve their trading using that tick size.
So, remember that tick size is not a just technical matter it is also part of your psychological state of mind, and every trader should be mindful of their own issue with any tick size.
Advantages of Tick Trading
There are a number of advantages of tick trading, particularly to those individuals who like being fast, accurate, and taking an active part in markets. Please see the highlights of the benefits below:
1. Small moves, Big profits
Ticket trading deals more with tiny fluctuations in price, and traders are able to obtain several fast profits during the course of the day.
2. When trading volume is high, this implies that there are larger opportunities.
Liquid markets have many price ticks which makes the market have consistent entry and exit points providing more trading opportunities.
3. More Market Timing
Tick charts show the action of price in more detail compared to time based charts because they are constructed using the data of trade activity and assist traders to enter and exit more accurately.
4. Cuts off Downtime
The tick charts do not update when no trade is taking place, like time-based charts, where there is a false indication of signal availability when the market is inactive.
5. Applicable to Scalping and High-Frequency Trading
Tick trading suits traders who base trades on high frequency and turnover of trades instead of trend capturing.
6. Greater pattern recognition
The micro-patterns created by tick charts, such as breakouts or reversal patterns, are usually visible to traders sooner than on traditional charts, a fact that causes an informational advantage in detecting changes in the market.
The future of tick trading
It seems that the future of tick trading is becoming more exciting and data-based as markets continue evolving with technology. As changes in algorithmic trading, artificial intelligence, and real-time analytics have improved both traders are now able to handle large numbers of tick by tick data within milliseconds.
This makes it possible to have more sophisticated plans, quicker actions, and risk management. The exchanges are also getting advanced in providing tools and APIs to take advantage of tick-level trading, especially in the futures and derivatives markets.
The involvement of retail customers in tick trading will only increase because the trading markets become more friendly and ready to provide tick charts, order flow tools, and more rapid execution rates. There is also a likelihood that the future will also be one that comes with more checks and balances or restrictions in the participation processes, especially on high frequency trading where fairness and stability in the market is desired.
Success in such a setting will not be all about being fast but also being shrewdly computerized, highly disciplined and flexible to the changing market dynamics.
FAQs
Market size, often measured by liquidity and volume, plays a huge role in determining your tick trading strategy. In larger, highly liquid markets (like Nifty or major U.S. indices), price movements are more frequent and predictable. This gives tick traders more opportunities to enter and exit quickly.
In smaller or less liquid markets, however, tick movements are slower, spreads may be wider, and slippage is more common. This can increase risk and reduce the efficiency of quick strategies like scalping. Always match your strategy with the size and liquidity of the market you’re trading in.
Tick sizes are set by the exchange and depend on factors like the asset’s price range, liquidity, and regulatory framework. High-value or volatile instruments may have larger tick sizes to reduce unnecessary micro-fluctuations, while highly liquid instruments may have smaller tick sizes to support active trading.
For example, futures contracts might have tick sizes of ₹0.05, ₹0.10, or even ₹1, depending on the instrument. This standardisation helps maintain fair trading and proper price discovery in each market.
No, you do not have the option of selecting the tick size. The exchange will predetermine the tick size of each trading instrument. But there is what you are allowed to select, which is the number of ticks you can place in your charts-100 ticks or a 500-tick chart (depending on strategy and speed of the market).
This flexibility aids you in defining your own preferences in observing the market without adjusting the actual minimum price move of the asset.
Most advanced trading platforms include tick charts, regardless of whether it is TradingView, MetaTrader, or NinjaTrader. You can select a chart type (e.g., 100-tick or 500-tick) rather than the typical time frames. Just make sure you can access real-time data, as tick charts are dependent on a live transaction to create the bars.
The most suitable markets for tick trading are those that are extremely liquid and volatile like index futures and well-known stocks with high volumes (i.e. Reliance and TCS) and major FX pairs, as they have tick movements more frequently than those in illiquid markets, tight spreads – which is important for scalping and traders that prefer to enter and exit trades quickly.
Trading in ticks demands promptness of decision and inability to lose concentration and be disciplined. One may endeavor to tackle tick trading but it is advised that new traders should practice using simulated accounts or paper trading. An inappropriate time or excessive trading may result in fast losses. It is a variation that makes sense to spend time trading in slower periods and then switch to tick trading.
Tick trading is all about making decisions rapidly, ready to act at a moment’s notice – this, on occasion, leads to emotional trading or overtrading. Since profits are small in tick trading, brokerage fees, slippage, and delays add up quickly! Always remember to use risk management tools like stop-losses, and avoid lower-volume assets where ticks can be more unreliable.
Tick charts may be more useful for detecting short-term price movements and filtering out slower, sideways periods. However, they are not “better” in every situation and traders with a long-term trading plan may prefer time-based charts over tick charts. Tick charts are most suitable for high frequency trades, such as tick trading and scalping.
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Reference:
Tick Size: Definition in Trading, Requirements, and Examples
