We often hear the words tick size, when it comes to buying and selling shares. This may not be one of the most important terms to know, but, it is very relevant in the stock market context.
If the minimum tick size is 5 paise, you can buy and sell of shares of the company by quoting Rs 310.10 and then Rs 310.15. You cannot place a price of Rs 310.12.
What this means is that you cannot put numbers that are irrelevant in the middle. There is a significance in having such tick size. Let's say that you are trading in the shares of State Bank of India. You can just outsmart somebody by putting a fraction higher or lower, like Rs 165.0002 for a sell order.
Large cap stocks maybe given a smaller tick size, due to the heavy volumes in these stocks. If the minimum tick size of a share is 0.005, we could safely say that the tick size is 0.50 per cent. Tick sizes are determined by the exchanges and some efforts are taken arriving at the same.
Recently, the Bombay Stock exchange reduced the tick size for units of mutual funds and also select fixed income securities. It also bought down the same for equity shares having a closing price of less than Rs 15.
Most of these were reduced from 5 paise to 1 paise. This was to ensure better liquidity in select shares under Rs 15, as also fixed income securities and mutual fund units.
At the moment the tick size for all shares traded above Rs 15 on the National Stock Exchange and the Bombay Stock Exchange is pegged at 5 paise.
So, you cannot place an order for 100 shares of SBI at 165.22. It may be more like Rs 165.20 and Rs 165.25.