Many traders know about pips, but ticks can be confusing. Let’s break it down simply.
What is a tick?
A tick is the smallest possible price movement of an asset. It can go up or down by a fixed amount, depending on the asset you’re trading.
Example 1
Imagine you’re trading a stock priced at $100.00, and the smallest price change allowed is $0.01.
- If the stock moves from $100.00 to $100.01, that’s one tick up.
- If it drops to $99.99, that’s one tick down.
Example 2
In the S&P 500 futures market, a tick might be 0.25 points, and each tick could be worth $12.50 per contract.
- If the price moves from 4500.00 to 4500.25, that’s one tick up.
- If it moves from 4500.00 to 4499.75, that’s one tick down.
Ticks vs. pips?
- A pip is the smallest movement in forex trading, usually 0.0001 for most currency pairs.
- A tick applies to many markets, including stocks, futures, and indices. The value of a tick varies depending on the asset.
1 pip = 10 ticks
5th decimal (0.00001)
Ticks help traders see small price movements and decide when to enter or exit trades. Some strategies focus on quick tick changes, while others look at larger price moves like pips or points.