At Nexybit we decided to set the tick price for Bitcoin at $1.

Ticks are the smallest unit for the price of a contract. For instance, if a tick size is $0.1, that would mean the price of a product could only change from $10 to $10.1. Although this may not seem like such a big deal, even these small rules can have a large effect on how prices change in the long run.

Okex ticks are $0.01. At the current price of $8,250 per bitcoin, that means you can trade at almost 1/1,000,000ths of the price! Since the tick prices are so small, despite the huge amount of trading occuring on the exchanges, there are usually gaps between orders on the Bid/Ask orderbook. Bitmex ticks for their Bitcoin contracts are a significantly larger $0.5 and their orderbooks are usually quite full.

The goal of any exchange is to promote price discovery and efficient capital formation. So we asked ourselves how should we decide on our tick size based on these two points? More freedom to choose precise prices on trades have both pros and cons.

A finer tick size theoretically increases the number of price levels available to liquidity providers and it can distribute liquidity onto a finer price grid. This may reduce market depth at the best quotes without reducing total liquidity. Much of the research that took place over the past 20 years looking at the US, Canadian, Hong Kong as well as Tokyo exchanges reported similar findings. However using more sophisticated limit order book data research from Goldstein and Kavajecz(2000) showed the opposite. They showed that the cumulative depth of the order books fell after tick size reductions. Other academic research showed that tick reduction can increases spreads as well.

We decided to follow the later; to increase tick sizes relative to the other exchanges in the market.

Larger tick sizes reduce the complexity of trading as it limits the number of possible price levels. It makes is easier for users to understand market dynamics.

Secondly, larger tick sizes reduce the bandwidth needs of the trading platform. A change in the market price can lead to a price update in many connected products which can be wasteful in terms of bandwidth. This may not seem like an important concept, but every popular exchange has faced downtime and lag when user traffic spikes. Due to the fact that Bitcoin exchanges are natively-digital, users from all around the world can easily access and hence bombard an exchange during times of extreme volatility.

Additionally, Okex and Bitmex have been around for a while and so the contract specifications may have been set in accordance to when Bitcoin prices were much lower. Newer specifications for Bitcoin contracts from CME and CBOE towards the end of 2017 are $5 and $10 respectively.

We believe that prices will stay above the $1,000 mark for the foreseeable future and hence decided on $1 tick sizes that are roughly 1/1,000ths to 1/10,000ths of the price of Bitcoin. This makes the tick size fine enough for accurate hedging/speculation, easy to approach and understand, and provide less strain on our systems.