DEFINITION of 'Decimalization'

A system where security prices are quoted using a decimal format rather than fractions. For example, this is a decimal trading quote: $34.25. Using fractions, the same quote would appear as $34 1/4. The U.S. Securities and Exchange Commission (SEC) ordered all stock markets within the U.S. to convert to decimalization by April 9, 2001, and all price quotes since appear in the decimal trading format.

Before 2001, markets in the United States utilized fractions in price quotes. The switch was made to decimalization to conform to standard international practices and to make it easier for investors to interpret and react to changing price quotes.

BREAKING DOWN 'Decimalization'

Decimalization has led to tighter spreads because of the corresponding smaller price increments and movements. For example, prior to decimalization, one-sixteenth (1/16) of one dollar was the smallest price movement that could be represented in a price quote (this is approximately six cents, or $0.0625). With decimalization, the minimum price movement is now one cent, or $0.01, providing a greater number of price levels, and allowing for tighter spreads between the bid and the ask levels for trading instruments.

  1. Nasdaq

    A global electronic marketplace for buying and selling securities, ...
  2. Decimal Trading

    A system in which the price of a security is quoted using a decimal ...
  3. Quoted Price

    The most recent price at which an investment (or any other type ...
  4. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  5. Zero Minus Tick

    A securities trade executed on an exchange at the same price ...
  6. New York Stock Exchange - NYSE

    A stock exchange based in New York City, which is considered ...
Related Articles
  1. Investing Basics

    Stock Basics Tutorial

    If you're new to the stock market and want the basics, this is the tutorial for you!
  2. Investing Basics

    Understanding The Ticker Tape

    We explain the meaning and use of that reel of symbols whizzing across your TV or computer screen.
  3. Investing Basics

    What Is The Impact Of Research On Stock Prices?

    The answer to this question is directly related to the importance of information in the marketplace.
  4. Investing Basics

    The Basics Of The Bid-Ask Spread

    The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders.
  5. Investing Basics

    Pin Down Stock Price With Real Options

    How can you assign a value to what a company may do with its business in the future? We explain how it works.
  6. Markets

    Are Your Stocks Doomed?

    When a company is headed for trouble, the warning signs are usually there. Learn how to spot disaster.
  7. Active Trading Fundamentals

    Forces That Move Stock Prices

    You can't predict exactly how stocks will behave, but knowing what affects prices will put you ahead of the pack.
  8. Professionals

    Top 3 Misconceptions About Financial Analysts

    Learn misconceptions about financial analysts, such as they exclusively study the stock market, they are the same as financial advisors and they are all rich.
  9. Investing Basics

    What is Equity?

    Think of equity as ownership in any asset after all debts stemming from that asset are paid.
  10. Investing Basics

    The Dangers Of Share Dilution

    Share dilution reduces the value of an individual investment and can drastically impact a portfolio.
  1. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  2. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  3. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  4. What are the requirements for being a Public Limited Company?

    The requirements for an entity to be considered a public limited company (PLC) include registration requirements, establishing ... Read Full Answer >>
  5. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  6. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center