Tick-Size Regimes and the MiFID II Tick Table

A price can't move by any amount you like. Exchanges define a tick size — the smallest increment a quote or trade price is allowed to change by — and every price you see is a multiple of it. A stock quoted at $50.00 might only be allowed to move in $0.01 steps, so $50.005 simply cannot exist as a valid price. That sounds like a small technical detail until you realize tick size isn't fixed: it depends on the price of the instrument and, in many markets, how liquid it is.

Why tick size isn't one number

If every stock used the same tick regardless of price, a $2 stock and a $2,000 stock would face wildly different economics. A $0.01 tick on a $2 stock is 0.5% of the price — a huge relative spread cost. The same $0.01 tick on a $2,000 stock is essentially free, encouraging quote-stuffing at a price level nobody needs. Regulators and exchanges solve this by scaling the tick to the price band the instrument trades in.

The clearest example is the EU's MiFID II tick-size table, which sets minimum ticks as a step function of both price and average daily number of transactions. A liquid stock trading around €50 might use a €0.005 tick, while a thinly traded stock at the same price uses a coarser €0.01, and a stock trading at €0.50 uses a much smaller absolute tick, like €0.0005, so the tick stays roughly proportional to price rather than a fixed absolute amount. US equities, by contrast, mostly use a flat $0.01 tick above $1.00 and a much smaller sub-penny tick below it — a simpler but cruder regime.

Worked example

Suppose a European stock trades at €48 with high liquidity, and MiFID II's table assigns it a €0.005 tick in that band. The best bid can be €47.995 or €48.000, but never €47.9975. Now the stock rallies to €520 and crosses into a coarser band where its tick jumps to €0.10. A limit order resting at what used to be a valid €520.05 must now be re-quoted to €520.00 or €520.10, since €520.05 is no longer a legal increment. Exchanges rebase resting orders to the new grid automatically at the crossing, but any system assuming "tick size is constant for this ticker" will silently mis-price or reject orders the moment that happens.

What this means in practice

For anyone building a backtest, order-routing engine, or limit-order-book simulator, treating tick size as one constant per instrument is a common quiet bug. It causes phantom fills at prices that were never legal, understates realistic spreads, and can make a strategy look profitable purely because it's trading on a finer grid than the market allows. European names need the current MiFID II table, since it's periodically recalibrated; for US equities, remember the sub-penny rule below $1.00 is its own separate regime, not a rounding error.