Trading might often feel like a game of timing. Here, even the smallest price change can make a huge impact. One of the major concepts that helps traders track these small movements is the Trading Tick. Though it may sound a bit more technical, this concept is actually very straightforward. A trading tick is actually the smallest price change that any financial asset, such as a stock, currency set, or future, can make.
This blog thoroughly explains what a tick is, why it is important, how it is used by the traders, and the simplest strategies that can be made to use it.
What is a Trading Tick?
A trading tick is defined as the minimum amount by which the price of a financial asset can move. Given below is a simple example to help you understand:
- Imagine there is a stock with a tick size of ₹0.05; the price of it can only move in increments of ₹ 0.05, such as ₹100.00, ₹100.05, ₹100.10, and so on.
- But for the futures contracts, the tick size and its value are already set by the exchange.
In simple words, ticks represent the “steps” of price change. Without them, prices would fluctuate randomly and traders would struggle to measure change.
Why Are Trading Tick Important?
Although ticks may appear small, they are the primary foundation of trading activity. And here’s why they are important:
- Outlines Accuracy in Price – Ticks showcase the smallest step that a price can move, ensuring consistency.
- Helps in the Calculation of Profit and Loss – Traders usually measure their profits or losses in terms of ticks. For example, if a futures contract fluctuates 10 ticks in your benefit and each tick equals ₹50, you’ve earned ₹500 in total.
- Regulates Market Flow – Tick sizes help mitigate excessive noise in the market by ensuring that price changes occur in uniform increments, thereby maintaining market stability.
- Building Trade Strategy – A majority of trading strategies, especially for day traders and scalpers, are built through predicting or capturing small tick movements.
Tick Size vs. Tick Value
These two terms are different, and here’s how we separate them:
- Tick Size – It is the minimum price movement allowed in trading, typically expressed as a specific amount (e.g., ₹0.05 or 0.25 points).
- Tick Value – This refers to the monetary value of that tick movement in a trading contract.
Let’s take an example: in a futures contract, if one tick equals 0.25 points and each point is worth ₹100, then one tick is worth ₹25. It’s simple maths!
Tick in Different Trading Markets
Ticks turn up differently depending on the market:
- In the Stock Market – In most stock exchanges, the tick size is very small, often ₹0.01 or ₹0.05
- In the Futures Market– Futures contracts have larger tick sizes that are defined by the exchange, like 0.45 points
- In the Forex Market – Forex doesn’t use ticks directly but works on “pips” (this is a similar concept, just in decimal form)
How do Traders Use Ticks?
By name, ticks might sound small, but many traders, especially day traders and scalpers, rely heavily on them. Given below are the points by which ticks are used in practice:
- Measuring Buy/Sell Price Action – Ticks showcase the flow of buying and selling pressure in real-time.
- For Short-Term Gains – Many traders target just a few ticks of profit, but with higher trade frequency.
- Market POV– Watching tick-by-tick movement can show the market point of view of buyers or sellers at the moment.
- Order Flow Trading – Some advanced traders watch tick charts (not time-based charts) to spot patterns in buying and selling activity.
Related resource – Is Forex Trading Legal in India
Tick Charts vs. Time Charts
Usually, traders are accustomed to using time-based charts, where each candle represents a set time interval, such as 1 minute, 5 minutes, or 1 hour.
But in tick charts, each candle represents a set number of trades (like 200 ticks per candle).
- Time Charts– show how the price changes over time.
- Tick Charts– show how price changes, based on the actual trading activity.
Several scalpers prefer tick charts as they react faster than time charts to market activity.
Tick Trading Strategies
Here are some of the simple strategies that use tick trading:
1. Scalping with Ticks
Scalpers strategize trading by entering and exiting trades quickly. They primarily aim for small tick profits multiple times in a day. For example, entering at ₹100.00 and exiting at ₹100.10 for a 10-tick gain
2. Breakout Trades
Traders watch tick charts for a sudden change in activity. Any movement here determines the direction of trading for them.
3. Following the Trend
Tick charts can help confirm the course of movement. If a series of ticks keeps pushing higher without much pulling back, traders ride the trend.
4. Monitoring the Order Flow
By observing each tick, buying and selling, traders measure if big players are entering the trading market. Sudden large tick volumes may signal trading activity.
Advantages of Tick Trading
- Precision – Helps to track minor price changes.
- Faster Signals – Tick charts often show profitable possibilities earlier than time charts.
- Best for Active Traders – Suits those traders who prefer short-term moves.
- Market Activity Awareness – Gives a closer look at the real buying and selling pressure of the market.
Tick Trading Challenges
- Too Fast for Beginners – Tick-by-tick movements can feel overwhelming for beginners.
- Requires Focus – Traders must remain vigilant and act promptly.
- High Transaction Costs – Frequent trading means higher brokerage fees.
- Not Ideal for Long-Term Investors – It’s only useful for day-time traders and for scalping strategies.
Example of a Tick Profit
Suppose you have a futures contract that has the following:
- Tick size = 0.25 points
- Tick value = ₹200
If the price moves from 100.00 to 102.00, that represents a total of 2 points or 8 ticks.
So, profit = 32 ticks × ₹200 = ₹6,400.
This shows how even a small tick move can add up to good profits.
Conclusion
The trading tick concept may seem small, but it forms the base of market movement. By identifying the smallest unit of price change, ticks enable traders to measure, calculate, and develop trading strategies based on short-term market behavior.
For beginners, it’s sufficient to know that ticks show the minute detail of price action. And for experienced traders, they become a powerful tool for scalping techniques, analysis of order flow, and precision trading.
Though not every trader needs to master ticks like a pro, those who deal in futures, in-day trading setups, or high-frequency trades often find ticks to be the key that unlocks uniform profits.