how a tick works
investments may have different potential tick sizes depending on the market in which they participate for example the e mini s p 500 futures contract has a designated tick size of 0 25 while gold futures have a tick size of 0 10 if a futures contract on the e mini s p 500 is listed for 20 it can move one tick upward changing the price to 20 25 based on the 0 25 tick size minimum however with that minimum tick size the price of the security could not move from 20 to 20 10 because 0 10 is below the minimum 56in 2015 the sec approved a two year pilot plan to widen the tick sizes of 1 200 small cap stocks this was done as part of research on trading in publicly traded companies with market capitalization levels around 3 billion and trading volumes below one million shares daily on average the pilot looked to widen the tick size for the selected securities to determine the overall effect on liquidity 2 the pilot program began in october 2016 and ended two years later 7results of the sec s tick size pilot programin the mid 2010s the sec was reviewing proposals to increase tick sizes some argued that doing so would provide an incentive for brokers to allocate more resources toward researching and promoting small cap stocks in particular boosting investment capital flow to smaller companies 8 the 2016 to 2018 pilot program however did not end as expected revealing that increasing tick sizes for these stocks led to reduced liquidity and a decline in stock prices for small spread stocks ranging between 1 75 and 3 2 the experiment which cost investors between 350 and 900 million highlighted the challenges of adapting regulatory frameworks in rapidly evolving financial markets particularly with the rise of discount brokers and online trading platforms the effort to revitalize interest in small cap stocks through larger tick sizes ultimately did not yield the anticipated benefits underscoring the complexity of market changes and the impact of regulatory changes 8tick as a movement indicatorthe term tick can also be used to describe the direction of the price of a stock an uptick indicates a trade where the transaction has occurred at a price higher than the previous transaction and a downtick indicates a transaction at a lower price for this reason an important sec regulation is known as the uptick rule which was in place from 1938 to 2007 and then reinstated in 2010 in an alternate form the rule requires trading centers not to allow short sales when there isn t an uptick in the stock price from the previous closing day the regulation is designed to relieve downward pressure on a stock that s already declining the 2010 alternative uptick rule rule 201 allows investors to get out of their long positions before short selling occurs the rule triggers once a stock price falls a minimum of 10 in a day once it does short selling is only allowed if the price is above the current best bid 910