If you invest or trade in the stock market, there is good news for you. The National Stock Exchange (NSE) has reduced the tick size for most securities (excluding ETFs) priced below Rs 250 from 5 paise to just 1 paise.
But can this 4 paise difference really make an impact on the market? Let’s explore how this move can be a game-changer for investors and traders.
What is Tick Size?
Tick size represents the minimum difference between the buy and sell price of a particular stock. In simpler terms, it is the smallest possible change in the stock price between two consecutive trades. It is as crucial as a single run in cricket.
For example, if a stock’s tick size is Rs 0.05, its price can only increase or decrease by Rs 0.05 intervals. However, with NSE’s new rule, the stock price can now move in Rs 0.01 intervals.
Why is this Important?
This move by the NSE is expected to increase market liquidity. As mentioned in Business Today, Anshul Jain, Head of Research, Lakshmishree Investments and Securities, states that reducing the tick size will narrow the bid-ask spread (the difference between the buying and selling price), thereby lowering transaction costs. Additionally, it will make the market more attractive for both investors and traders.
Jain further explains that this strategic step could be highly beneficial for day traders, high-frequency traders, market makers, and brokers, especially those who rely on minimal spreads and high liquidity for their trading strategies.
When Will This Change Take Effect?
The new tick size rule will be implemented in the NSE’s cash segment from June 10 and in the stock futures segment from July 8. Moreover, the NSE will review the relevant stock prices monthly. Notably, if a company undergoes corporate actions such as bonuses, stock splits, dividends, or rights issues, the existing tick size for that specific share will remain in effect until the monthly review. After the review, adjustments can be made if necessary.
What’s Next?
This move by the NSE isn’t entirely new, as the BSE implemented a similar change for stocks priced below Rs 100 in March of last year. Now, the NSE is advancing in this direction, offering even more flexibility in investing and trading. Therefore, keep pace with these changes and adjust your strategies accordingly.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
