Tick Size
The smallest price step an F&O contract can move — the atomic unit of price change that defines your minimum P&L increment per lot.
Definition
Tick size is the minimum increment by which the price of a financial instrument can move on an exchange. On NSE and BSE, the standard tick size for equity derivatives — including Nifty 50, Bank Nifty, FinNifty, MidcpNifty options and futures, as well as stock F&O — is ₹0.05 per unit. No order can be placed at a price that is not a whole multiple of the tick size. If an option is quoting at ₹12.50, the next valid prices are ₹12.45 and ₹12.55; a limit order at ₹12.52 would be rejected. The tick size sets the resolution of the bid-ask spread — the spread can never be tighter than one tick.
Why it matters
For options traders, tick size has two important practical consequences. First, it determines the minimum P&L movement per lot. For a Nifty 50 option with a lot size of 25, one tick (₹0.05) equals ₹0.05 × 25 = ₹1.25 of profit or loss per lot. For Bank Nifty options with a lot size of 15, one tick = ₹0.75 per lot. At first these seem trivially small, but scalping strategies that target just a few ticks can add up across many lots and many trades in a session.
Second, tick size floors the minimum possible bid-ask spread. For deep in-the-money options or futures, this one-tick floor is excellent — it means the spread is tight relative to the contract's value and execution costs are low. For very cheap far-OTM options — say, Nifty weekly options priced at ₹0.10 or ₹0.15 — the bid-ask spread of one tick (₹0.05) represents 33% to 50% of the entire option premium. Buying at the ask and selling at the bid at these prices means you lose a third to half the value just in spread friction, making short-dated OTM options far more expensive to trade than their nominal price suggests.
Tick size also matters for algo and options market-making strategies that compete for edge by placing orders one tick better than the existing best bid or ask. The granularity of price improvement is entirely governed by tick size — a coarser tick means less competition and wider effective spreads; a finer tick increases competitive pressure on market makers but can also fragment liquidity across many price levels.
Formula
Tick Value (₹ per lot) = Tick Size × Lot Size. For Nifty (lot = 25): ₹0.05 × 25 = ₹1.25 per tick per lot. For Bank Nifty (lot = 15): ₹0.05 × 15 = ₹0.75 per tick per lot. A 10-tick move in a Bank Nifty option therefore changes the value of one lot by ₹7.50. Valid order price = N × Tick Size, where N is any positive integer.
Example
Say a trader wants to sell a Nifty weekly call option at a premium of ₹45.00. The current best bid is ₹44.95. She places a limit sell order at ₹45.00 — a valid price (45.00 / 0.05 = 900, a whole number). The buyer wants to improve their bid and enters ₹44.95 + ₹0.05 = ₹45.00. The orders match. If instead the buyer tried to enter ₹44.97, the system rejects it because ₹44.97 is not a valid multiple of ₹0.05. Now suppose the same trader wants to buy a far-OTM put quoted at ₹0.10 bid / ₹0.15 ask. The spread is one tick — but that single tick is 50% of the ask price, an enormous percentage cost that makes this option very expensive to trade profitably.
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