Decimal Trading

DEFINITION of 'Decimal Trading'

A system in which the price of a security is quoted using a decimal format rather than fractions. For example, a decimal trading quote would be $56.25; using fractions, the same quote would appear as $56¼. The U.S. Securities and Exchange Commission (SEC) ordered all stock markets within the U.S. to convert to decimals by April 9, 2001. Prior to 2001, markets in the United States utilized fractions in price quotes. Since decimalization, all quotes appear in the decimal trading format.

BREAKING DOWN 'Decimal Trading'

Decimalization has led to tighter spreads since smaller price movements can be accounted for. For example, prior to decimalization, one-sixteenth (1/16) of $1 was the minimum price movement represented in a price quote (this is equal to $0.0625).

With decimalization, the minimum price movement is 1 cent for stocks over $1, providing a greater number of price levels and allowing for tighter spreads between the bid and the ask levels for trading instruments.

RELATED TERMS
  1. Handle

    The whole number part of a price quote. In a quote the handle ...
  2. Stock Quote

    The price of a stock as quoted on an exchange. A basic quote ...
  3. Teenie

    In trading, a measure of value representing one sixteenth of ...
  4. Tick

    The minimum upward or downward movement in the price of a security. ...
  5. Quoted Price

    The most recent price at which an investment (or any other type ...
  6. Pip

    The smallest price change that a given exchange rate can make. ...
Related Articles
  1. Investing

    Betting Basics: Fractional, Decimal & American Odds

    Betting odds are expressed in three popular formats: Fractional (British), Decimal (European) and American (Moneyline). So, if you are planning to enter the betting or the gambling world, it ...
  2. Markets

    How To Read A T-Bill Quote

    If you want buy and sell US Treasury bills, you need to learn to read the quotes.
  3. Markets

    Stock Quotes Explained

    Curious about how stock quotes are compiled and what a trader should know about how? Read on.
  4. Trading

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  5. Markets

    Understanding Bond Quotes

    A bond quote is a bond’s trading price.
  6. Trading

    Top 5 Questions About Currency Trading Answered

    To trade currency successfully, it helps to know the answers to these basic questions.
  7. Markets

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  8. Managing Wealth

    You Can Share a Helicopter: Here’s How

    It's called fractional ownership, and if you often fly in helicopters, it could be well worth the investment.
  9. Investing

    How To Calculate The Bid-Ask Spread

    It's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
  10. Trading

    Forex Minis Shrink Risk Exposure

    Trading less than a standard lot means getting in for less - and having less to lose.
RELATED FAQS
  1. What is the difference between pips, points, and ticks?

    Learn the differences between points, ticks and pips and how each are used by investors to measure price changes in stocks, ... Read Answer >>
  2. How are my total returns calculated?

    My financial planner says my equity portfolio is up year to date after the fee (1.5%) 5 months into the year. Bonds are up ... Read Answer >>
  3. Where did the term 'pip' in currency exchange come from?

    Learn the definition of a pip, what it means in the scope of currency exchanges and how to determine its value. Find out ... Read Answer >>
  4. Why did the New York Stock Exchange report prices in fractions before it switched ...

    Before April 9, 2001, when the Securities and Exchange Commission ordered all U.S. stock markets to switch to the decimal ... Read Answer >>
  5. What is the name of the currency in New Zealand?

    The New Zealand currency is known as the New Zealand dollar. The currency was decimalized in 1967, and divided into 100 parts ... Read Answer >>
  6. What is a basis point (BPS)?

    A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial ... Read Answer >>
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center