A "tick" refers to the smallest possible increment by which the price of a financial asset can move on a trading platform. It represents the minimum price change, either up or down, that an asset can experience. The size of a tick varies depending on the asset and the exchange where it's traded.
Example:
Consider a stock, "ABC Corp," being traded on an exchange.
Scenario 1: Tick Size of $0.01
If the current price of ABC Corp is $50.25 and the tick size is $0.01, the price can only move to $50.26 (up one tick) or $50.24 (down one tick). It cannot move to, for example, $50.255.
Scenario 2: Tick Size of $0.005 (less common for stocks, more for some currencies or futures)
If the current price is $50.250 and the tick size is $0.005, the price could move to $50.255 or $50.245.
In essence, the tick defines the granularity of price movements, ensuring that bids and offers are made at standardized, minimum price increments.