How Tick Sizes Govern Whether Limit Orders Can Match

Summary

The document explains how exchanges’ minimum price increments determine whether a bid and ask can match. Prices are discrete at the instrument’s tick size, so orders are entered at permitted price levels rather than at arbitrary decimal values. A buyer’s bid and seller’s ask either meet at an allowed price increment or remain unmatched.

The answer addresses whether a tiny gap between quoted prices can still result in a trade: if the quotes differ by a valid tick or more, they do not match automatically; a trade requires compatible prices under the venue’s matching rules. The document provides no instrument-specific tick sizes or detail about marketable orders, price improvement, or matching priorities. Tick size varies by contract or security, so the general explanation must be applied using the relevant exchange’s specifications.

Key ideas

• Exchanges define a minimum price increment called a tick size.
• Orders are quoted at permitted price increments for the instrument.
• A bid and ask must be compatible at an allowed price level to execute against each other.
• The applicable tick size depends on the instrument and its exchange specifications.

Tags

# For a trade to occur, should the ask price EXACTLY match the bid price, down to the last decimal point?


# For a trade to occur, should the ask price EXACTLY match the bid price, down to the last decimal point?












I had a doubt when going across the ways in which a trade happens. I have read that fora trade to happen, the buy order's price (bid) must match the sell order's price (ask). Now, what happens, if they are off by say 1/100th of a dollar. Will the trade still not happen? If it does, at what price will it trade?

## Answer by Thomas Boyd (score 2)

https://quant.stackexchange.com/a/74107

All exchanges have minimum price fluctuations, or tick sizes, which is the smallest increment at which prices are discrete.

The buyers bid price must match the sellers ask price down to the tick size. Orders can't be listed beyond the minimum price fluctuation so by definition, a sellers price can't be "off" by any amount beyond the minimum price fluctuation.

Orders either match down to the tick or they don't.

CME Globex Tick Size and Pricing Data

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.