Sunday, February 11, 2001
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Posted on: Sunday, February 11, 2001

Trading in fractions is centuries old

Conversion to decimal stock trading a challenge

Associated Press

Some facts about decimal trading:

The Securities and Exchange Commission has given markets until April 9 to fully decimalize all stock and option trading. The government agency maintains that decimals will make stocks easier for individual investors to understand and make bidding for stocks more competitive.

The shift puts the United States in line with the world’s other major markets and exchanges, which have been using decimals for years. U.S. markets’ use of fractions dates back to the late 18th century, when prices were tied to Spanish currency, which was based on increments of one-eighth.

Investors may save money as well, because decimals will likely narrow what is called a spread. A spread is the difference between the price one trader bids and the price another trader asks for a share of a particular stock. In a fraction system, the smallest difference is 1/16, about 6.25 cents. The use of decimals will allow that increment to drop to 1 cent in stock trades. For options trading, the smallest increment being used is a nickel or a dime, depending on the dollar value of the option.

So far, the New York and American Stock Exchanges have converted. The Nasdaq Stock Market plans to begin its conversion in March.

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