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Home > Capital Markets Calculations > Tick Value

Capital Markets Calculations

Tick Value


What It Measures

There are in fact two different uses of the term “tick value.”

  1. Tick value can refer to the value of the minimum price movement of a traded stock allowed by an exchange. For example, many US stock markets have a tick size of 0.01, which translates into a tick value of one cent for the NYSE. In contrast, the EUR futures market has a tick value of 0.0001.

  2. Tick value can also refer to the number of buyers and sellers of a stock who are bidding above or below the current market value of a stock.

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Why It Is Important

For traded companies, tick value is part of the contractual requirement to be listed on a stock market. Understanding tick value can also help when assessing the risk associated with investment opportunities: Markets with smaller tick values will generate smaller gains and losses with each price movement of a stock.

For investors, tick value also gives a good indication of how many investors are buying a stock on upticks versus downticks, which can be tracked over time to see whether market sentiment is broadly rising or falling.

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How It Works in Practice

Stock value relating to market sentiment is calculated according to the number of people placing orders to buy and sell a stock at any given time.

For example, at 9am Company A’s stock will have a spread value, based on the difference between highest price buyers will pay, and the lowest bid sellers will accept. For frequently traded stocks, the spread will tend to be relatively small.

A buyer might believe the value of Company A’s stock is increasing, and wants to buy stock now. They will therefore place an order for stock, and accept the best offer available from a seller. This sort of transaction is said to have happened on an “up tick” where the market is expected to rise. The opposite, where the seller accepts the best price offered by a buyer, is said to happen on a “down tick.”

Stock exchanges calculate tick value by measuring precisely how many trades happen on each of these trajectories every few seconds. For example, on the NYSE, the tick value is taken every six seconds. A tick value of +100 means that 100 more issues traded on down ticks rather than up ticks. Tracking the tick value over time allows you to gain insight into market sentiment.

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Tricks of the Trade

  • Among European currency exchanges, the euro futures market has a tick value of $12.50, compared to $6.25 for the British pound futures market. Tick values in stock indexes vary widely, from $5 for the Dow Jones futures market up to $12.50 for the S&P 500.

  • Some statisticians have attempted to use tick data to analyze market performance and make predictions based on average ticks over 20 days. Generally speaking, ticks of more than +1000 or less than −800 would suggest excessive market optimism or pessimism.

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Further reading on Tick Value

Articles:

  • Porter, David C., and Daniel G. Weaver. “Tick size and market quality.” Financial Management 26:4 (Winter 1997): 5–26.
  • Small Investors Software Co. “NYSE tick—Statistical analysis.” July 3, 2003. Online at: tinyurl.com/6g8ar8s [via Internet Archive].
  • Steenbarger, Brett. “A NYSE TICK primer: How to assess intraday sentiment.” TraderFeed (December 16, 2008). Online at: tinyurl.com/5wcfp6

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