Definition: Tick size is the minimum price change between different bid and offer prices of an asset traded on an exchange platform. It is the minimum price difference that must exist at all times between consecutive bid and offer prices. In other words, it is the minimum increment in which prices can change. For example, if a stock has a tick size of Rs 0.05 and if the last traded price (LTP) was Rs 100, then the next five best bid prices for the stock shall be Rs 99.95, Rs 99.90, Rs 99.85, Rs 99.80 and Rs 99.75. In this instance, the bid price cannot be Rs 99.87, say, as it does not meet the tick size of Rs 0.05.
Description: Suppose the LTP of a stock is Rs 100, i.e. last time the stock traded at Rs 100 on a particular exchange, say the National Stock Exchange or NSE, and the tick size is Rs 0.05.
At the LTP of Rs 100, the bid-offer window of the stock shall look something like this:
In the above table we can see that the best bid price is Rs 99.90, instead of Rs 99.95, even though the LTP is Rs 100. This is because there is no bid at Rs 99.95, i.e. the quantity bid at Rs 99.95 is zero. Similarly, there is no offer price at Rs 100.15 after Rs 100.10, instead the next best offer price is Rs 100.10, i.e. again the quantity offered at Rs 100.15 is zero.
Thus, whenever there is no quantity bid at a particular price, that particular price is not shown in the bid column, instead the price at the next tick (i.e. 0.05) is shown. This goes on till a maximum of five bid prices are visible in the column. A similar logic applies to the offer price column.
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