why do exchanges set minimum tick sizes 
tick sizes help maintain an orderly market by standardizing the minimum price increments tick sizes reduce price volatility caused by too many price movements in tiny increments a well chosen tick size can balance liquidity and price discovery if the tick size is too large it can lead to a wider bid ask spread making trading more costly for investors meanwhile a tiny tick size can result in a cluttered order book with minimal meaningful price differentiation obstructing efficient price discovery the bottom linetick size is the lowest allowed increment of a price change for a listed security set by the exchanges different financial products have different standardized tick sizes a smaller tick size allows tighter bid ask spreads and the trend has been for implementing smaller tick sizes in many markets for example when the u s stock market shifted from minimum ticks of one sixteenth of a point 0 0625 to decimalization in the 2000s the minimum tick became 0 05 and then 0 01 for most stocks today due to mechanisms like retail price improvement and dark pools customers often see stock fills at sub penny increments tick size can differ from the tick value or the profit loss per tick based on the tick size so if a tick size is 0 05 a one tick change would result in a 5 00 difference for 100 shares of stock 