Tick size

What is Tick size in forex and CFD trading

Tick size is the smallest possible incremental price movement or change an instrument can make, representing the minimum difference between consecutive quotes. Tick size matters for real trading decisions because it defines the granularity of price action, directly influencing the precision of order placement, slippage estimation, and the calculation of transaction costs. For most major forex pairs, the Tick size is 0.00001 of the exchange rate (the fifth decimal place), often called a fractional pip or pipette. A trader can verify the specific Tick size for any instrument on their platform by viewing the instrument specifications, which explicitly state the Tick Size and its Tick Value in the account currency.

Key facts about Tick size

• Forex Standard: For major forex pairs like EUR/USD, the standard Tick size is the fifth decimal place, equivalent to 0.1 of a standard pip (a pipette).
• Non-Forex Standard: For indices and commodities, the Tick size is typically 0.1 or 0.01 of the quote unit, corresponding to the smallest change the underlying futures market will allow.
• Price Granularity: The Tick size determines the level of detail at which quotes can be displayed, traded, and recorded, affecting the precision of fills.
• Tick Value Formula: The monetary value of a single Tick for a given volume is calculated as: Tick Value = Tick Size × Contract Size × Volume (Lots)
• Impact on Spread: The bid-ask spread is always quoted as a multiple of the Tick size; for instance, a spread of 1.5 pips on EUR/USD is 15 ticks.
• Execution Quality: A finer Tick size (smaller movement) can theoretically lead to smoother, more granular execution, whereas a larger Tick size may result in greater price jumps between available quotes.

How Tick size works in forex and CFD trading

The Tick size operates as the fundamental unit of price change, defining how the broker’s liquidity providers quote and how the platform registers price movements.

The process involves these sequential steps:

1. Market Quote Input: The broker receives price feeds where quotes change in discrete steps defined by the Tick size (e.g., EUR/USD moves from 1.10005 to 1.10006).
2. Order Matching Precision: The trading platform can only match or fill orders at prices that are a multiple of the Tick size.
3. Spread Definition: The current spread is represented by the difference between the Bid and Ask prices, measured in units of the Tick size. For EUR/USD, a 0.5 pip spread is 5 ticks.
4. PnL Calculation Base: A trader’s PnL accumulates or declines as the price moves up or down in increments of the Tick size, with the financial impact calculated using the Tick Value.
5. Stop/Limit Placement: All pending orders, including Stop Loss and Take Profit levels, must be placed at prices that are precise multiples of the instrument’s specified Tick size.

Example of Tick size with a real trade

This example demonstrates how the Tick size is used to calculate the actual monetary value of a minor price movement.

• Instrument: EUR/USD
• Contract size: 100,000 units
• Tick size (pipette): 0.00001
• Position size: 1.0 standard lot
• Price move: 10 ticks (equivalent to 1 pip, i.e., 1.10000 to 1.10010)

Result: A 10 tick (or 1 pip) price movement generates a gross profit of $10.00 for a 1.0 lot position, demonstrating the direct financial impact of the Tick size definition.

How Tick size affects your cost and risk

The Tick size itself does not introduce cost, but it dictates the minimum price interval, which affects the minimum possible spread and the perceived size of slippage and gaps.

Tick size compared with related concepts

Tick size vs Pip

Tick size is the smallest change a price can legally make, often one-tenth of a pip (a pipette, 0.00001 for EUR/USD), whereas a Pip (Price Interest Point) is the standard unit of change used for quoting spreads and calculating PnL, typically 0.0001 for most currency pairs.

Tick size vs Tick Value

Tick size is the incremental unit of price movement (a dimensionless price quantity), while the Tick Value is the monetary worth of that single price increment for a specific volume, expressed in the trader’s account currency.

Broker differences in Tick size across the industry

The main difference between brokers regarding Tick size lies in whether they offer 4 or 5 decimal pricing for forex, which determines the precision and granularity of quotes and trade execution.

How to verify Tick size on your trading platform

To mechanically verify the exact Tick size for an instrument on a platform like MetaTrader 4 (MT4), follow these steps:

1. Locate Symbol in Market Watch: Open the Market Watch window and ensure the instrument you are checking (e.g., EUR/USD) is visible.
2. Open Specifications Window: Right-click on the symbol and select Specification (or Properties in MT4).
3. Identify Tick Size Field: Scroll down to the field labeled Tick Size; this value explicitly defines the minimum price movement allowed.
4. Note Tick Value: Note the Tick Size and the Tick Value fields to understand the price granularity and its financial impact.
5. Observe Price Decimal Places: Observe the real-time quotes in the Market Watch window; count the decimal places of the price to visually confirm the Tick size granularity (e.g., 1.10005 is 5 decimals).
6. Test Order Placement Precision: Place a pending Limit order; the platform should only allow prices that are exact multiples of the published Tick size.

Sanity check: For standard 5 decimal forex pricing, the Tick Size should read 0.00001, and the Tick Value for a standard lot should correspond to $1.00 of PnL per single tick (pipette).