What is Bid Tick
A bid tick is an indication of whether the latest bid price is higher, lower or the same as the previous bid. Bid ticks track movements of bid prices in an open market for all placed bid offers, giving real-time information to traders and market participants as to the direction of bid prices over any given time period. In contrast, the ask tick would track ask requests over the same time period.
BREAKING DOWN Bid Tick
The direction of the bid tick is important to institutional traders, who move large amounts of stock within a small period of time. Day traders also rely heavily on the direction of the bid tick when making their trade decisions. By monitoring bid ticks, traders can look for indications of how the market is expecting prices to move and the general spread between bid and ask quotes.
The Bid Tick Index
The bid tick index is a popular indicator used by day traders to view the overall market sentiment at any point in time. Seeing the ratio of "up" stocks to "down" helps traders make decisions that are dependent on market movement. Typically, readings of +1,000 and -1,000 are considered extremes; traders should be mindful of overbought and oversold conditions at these levels.
A tick index is a short-term indicator, relevant for only a few minutes. For traders looking to enter into bullish sentiment, a positive tick index is a good indicator of overall market optimism, as more stocks are trading up rather than down. However, traders should remember that the tick index is a very broad and speculative identifier of market sentiment at a specific point in time. Traders with longer term strategies generally consider it an unreliable or insignificant indicator.
Bid Tick Size
The bid tick size is the minimum price increment in which a stock is allowed to move while trading on the exchanges. For example, if a stock going for $10 had a tick size of $1, its price is only allowed to change in increments of a dollar to $11 and not to $10.25. For someone who wants to buy or sell that stock, the tick size is the minimum price change at which that investor can update the order. The effects that tick sizes have on the last sale price of a stock and the bid-offer prices are widely debated across the industry.
In 2001, the stock market moved from a fraction-based system to a decimal system of trading, in which bid ticks moved in pennies. This means the next tick of a stock trading at $10 was either $10.01 or $9.99 in either direction. According to the Securities and Exchange Commission, the smaller price increments created tighter spreads, and quoted depth was reduced.