What Is the Concept of ‘Tick Size’ and How Does It Interact with Latency in Options Pricing?
Tick size is the minimum price increment an option can trade at. A smaller tick size allows for tighter spreads and more granular price competition.
When tick sizes are small, a market maker with a latency advantage can rapidly adjust their price by a single tick to jump ahead of competitors, thereby directly increasing their fill rate at the expense of slower participants.
