easy · Market Microstructure
How does the minimum tick size affect the 'free option' problem for limit order traders?
- A smaller tick size makes it easier for limit orders to be 'picked off.'
- A larger tick size decreases the value of the option.
- A smaller tick size allows 'penny jumping,' discouraging traders from providing liquidity.
- The tick size has no impact on the economic value of resting orders.
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