Tick Size

#Definition

Tick Size is the minimum price increment. Affects how precisely you can place/cross orders and the spread granularity.

#What is Tick Size?

The smallest possible price movement in a market:

• Example: $0.01 (1 cent)
• Limits precision: Can't trade at $0.455, only$0.45 or $0.46
• Affects spreads: Minimum spread = 1 tick
• Platform-specific: Different markets may vary

#Common Tick Sizes

#Prediction Markets

Note: Polymarket uses dynamic tick sizing; the tick automatically narrows to $0.001 when prices exceed$0.96 or fall below $0.04, allowing finer precision at probability extremes.

#Traditional Markets (Comparison)

#Why Tick Size Matters

#Spread Width

Minimum spread equals one tick:

• Tick = $0.01: Tightest spread is 1¢
• Bid $0.50, Ask$0.51: One-tick spread
• Can't have: $0.505 midpoint

#Order Placement

Your limit orders must use tick increments:

• ✓ Valid: $0.50,$0.51, $0.52
• ✗ Invalid: $0.505,$0.517, $0.5225

#Price Improvement

Limited by tick size:

• Can only improve by 1¢ increments
• Fine-tuning restricted
• Jump to better price = full tick

#Impact on Trading

#Tight Spreads

When prices near $0.50:

• Spread: $0.49 bid,$0.50 ask (1¢ = 2%)
• Reasonable transaction cost
• Good for trading

When prices near extremes:

• Spread: $0.01 bid,$0.02 ask (1¢ = 100%!)
• Huge percentage cost
• Difficult to trade

#Price Discovery

• Coarser at extreme probabilities
• Smoother around 50%
• Affects accuracy at tails

#Market Making

• Minimum profit = 1 tick
• Need volume to earn meaningful amounts
• Competition keeps spreads tight

#Visualizing Tick Granularity

Tick size creates a "grid" of valid prices. You cannot trade between the lines.

#Example Scenarios: Cost Impact

The same $0.01 tick size has vastly different impacts depending on the share price.

#Developer Guide: Validating Prices

When building trading bots, you must ensure your orders align with the tick grid to avoid API errors.

/**
 * Checks if a price is valid for a given tick size.
 * @param {number} price - The price to check (e.g., 0.505)
 * @param {number} tickSize - The market's tick size (e.g., 0.01)
 * @returns {boolean} - True if valid
 */
function isValidPrice(price, tickSize) {
  // Use epsilon for floating point comparison
  const epsilon = 0.000001;
  const remainder = price % tickSize;
  
  // Check if remainder is effectively 0 or effectively tickSize
  return remainder < epsilon || Math.abs(remainder - tickSize) < epsilon;
}

// Examples
console.log(isValidPrice(0.50, 0.01));   // true
console.log(isValidPrice(0.505, 0.01));  // false

#Trading Strategies

#Joining the Queue

With 1¢ ticks, you can't undercut by a fraction. You must match the best bid or ask exactly. Time priority becomes crucial; being the first order at $0.50 ensures you get filled before others at the same price.

#Penny Wars

Market makers often compete by improving the bid/ask by exactly one tick.

• Bid moves from $0.48 ->$0.49
• Ask moves from $0.52 ->$0.51
• Result: Spread compresses to the minimum 1 tick ($0.49-$0.51).

#Picking Your Spot

At $0.50:

• Set limit at $0.49 (patient buyer)
• Or pay $0.50 (immediate execution)
• Choice: Only two options.

At $0.03:

• Set limit at $0.02 (33% below)
• Or pay $0.03 (50% above)
• Choice: Huge percentage jumps force difficult decisions.

#Smaller Tick Sizes

#Hypothetical $0.001 Tick

Some markets (like Polymarket at extremes) use smaller ticks.

Advantages:

• Tighter spreads possible (e.g., $0.001 spread on a$0.02 asset is only 5%, vs 50% with penny ticks).
• More precise pricing for high-probability events (99.1% vs 99.2%).

Disadvantages:

• More complexity for traders.
• "Quote flickering" where prices change too rapidly.
• Minimal benefit at mid-range prices (who cares about $0.501 vs$0.502?).

#Why $0.01 is Standard

• Simple: Easy to understand ("penny slots").
• Sufficient: Good enough for most 50/50 outcomes.
• Historical: Matches currency decimals.
• Efficiency: Reduces database load by limiting price updates.

#Tick Size and Volatility

#Fast Markets

• Prices jump multiple ticks at once.
• Order flow is uneven.
• Spreads widen temporarily as market makers pull back.

#Slow Markets

• Prices move one tick at a time.
• Steady progression.
• Tight spreads maintained.

#Advanced: Sub-Penny Trading

#Not Available in Prediction Markets

Most platforms prohibit sub-penny orders to prevent "front-running" by high-frequency traders who might outbid you by $0.0001 just to steal execution priority.

#Used in Other Markets

• Dark pools
• Institutional forex
• Specialized crypto exchanges

#Tick Size Effects

#On Bid-Ask Spread

Minimum Spread = 1 tick
Percentage Cost = Tick / Price

Examples:

• @ $0.50: 1¢ / 50¢ = 2%
• @ $0.10: 1¢ / 10¢ = 10%
• @ $0.02: 1¢ / 2¢ = 50%

#Tick Cost Visualization

#On Position Sizing

With a 1¢ tick, small positions feel the friction more. Entering and exiting costs a minimum of 2 ticks (buy spread + sell spread). You need enough volume or price movement to overcome this base friction.

#Practical Tips

#Understanding Your Cost

Before trading, calculate your effective cost:

Effective Cost = (Tick / Entry Price) × 100%

#Account for Ticks

• Include spread in EV calculations.
• Factor round-trip cost (2 ticks).
• Scale position to justify friction.

#Avoid Extreme Prices

Unless you have strong conviction or access to dynamic tick markets (like Polymarket's sub-penny zones), trading at $0.01-$0.05 is mathematically expensive due to spread costs.

#Platform-Specific Tick Sizes

For detailed information on how tick size works on specific platforms:

• Polymarket Tick Size: Dynamic tick ($0.01 standard,$0.001 at price extremes)
• Kalshi Tick Size: Fixed $0.01 tick with CFTC-regulated structure

#Related Terms

• Bid-Ask Spread
• Order Book
• Limit Order
• Market Maker
• Liquidity
• Polymarket
• Kalshi