When you glance at a stock’s price chart, you’ll notice that prices don’t move in continuous flows—they jump in small increments. That increment is called the tick size. While it may seem like a technical footnote, tick size plays a crucial role in shaping market liquidity, trading costs, and even your ability to get the best price when buying or selling shares on the ASX.
What is Tick Size and Why Does It Matter?
Tick size is the minimum price movement allowed between different bids or offers on the market. On the ASX, this is usually one cent for most equities, but can be smaller or larger depending on the price of the security or the asset class. For example, shares trading under $2 typically have a tick size of 0.1 cent, while those above $2 have a 1 cent tick size.
- Liquidity: Smaller tick sizes can encourage tighter bid-ask spreads, making it easier for buyers and sellers to meet at a fair price.
- Trading costs: The tick size can impact the cost you pay to enter or exit a position, especially for frequent or high-volume traders.
- Market structure: Exchanges regularly review tick size settings to balance competition, liquidity, and trading efficiency.
2025 Updates: ASX Tick Size Adjustments and Global Trends
In early 2025, the ASX confirmed a review of tick size regimes for select equities and ETFs, following similar moves by exchanges in the US and Europe to adapt to algorithmic and high-frequency trading. While the 1 cent standard remains for most ASX-listed shares, adjustments are being piloted for higher-priced stocks and certain ETFs to improve liquidity during periods of volatility.
Key 2025 developments:
- Dynamic tick sizes: The ASX is trialling dynamic tick sizes for some stocks, meaning the minimum price increment can widen during periods of high volatility to reduce order book clutter.
- Lower tick sizes for ETFs: Select ETFs now trade in 0.5 cent increments, supporting tighter spreads and more efficient market-making.
- Global harmonisation: The ASX is working with other Asia-Pacific exchanges to align tick size rules, helping Australian investors compete globally and access cross-listed products more easily.
How Tick Size Impacts Your Trading and Investment Decisions
Tick size isn’t just a market microstructure issue—it directly affects your trading outcomes. Here’s how:
- Order execution: A smaller tick size can help you get filled closer to the current market price, reducing slippage for limit orders.
- Bid-ask spread: Narrower spreads lower your implicit trading costs, especially important for active traders and ETF investors.
- Liquidity for small-caps: For illiquid stocks, too-small tick sizes can reduce incentives for market makers, making it harder to buy or sell at the quoted price.
Example: Imagine you’re trading shares of a tech stock priced at $1.95. With a tick size of 0.1 cent, there could be bids at $1.95, $1.951, $1.952, etc. This allows for more granular price improvement but can also lead to order book congestion. By contrast, a $10 stock with a 1 cent tick size will see more streamlined, but potentially wider, price gaps.
Tick Size and the Rise of Algorithmic Trading
Algorithmic and high-frequency traders (HFTs) are highly sensitive to tick size. Too small a tick, and algorithms may flood the market with orders, increasing noise and complexity. Too large, and spreads widen, potentially discouraging trading and harming liquidity. The ASX’s 2025 review aims to strike a balance—keeping the market competitive for retail investors while discouraging manipulative practices like quote stuffing.
For everyday investors, the main takeaway is that tick size reforms are designed to keep your trading experience efficient, transparent, and fair—no matter how the underlying technology evolves.
Conclusion: The Smallest Details Can Make a Big Difference
Tick size may seem trivial, but it quietly shapes the costs and quality of your share trading in Australia. With ongoing reforms in 2025, Australian investors can expect a more dynamic, globally competitive, and liquid market. Whether you’re placing your first trade or managing a large portfolio, understanding tick size is a smart step toward more informed investing.
