Tick size is an important concept in market trading, as it defines the smallest increment in price that an asset can move. It is determined by the exchange where the asset is traded and varies by asset class (e. g. , stocks, bonds, futures). Understanding tick size is critical for traders, as it affects the precision with which they can enter or exit positions, as well as the potential profitability of a trade. A smaller tick size allows for finer price movements and greater flexibility in trading, while a larger tick size can limit the number of available price points and impact liquidity.