What Is a Teenie
A teenie, in trading, is a measure of value representing one-sixteenth of one basis point. A basis point is one-hundredths of a percent.
- A teenie is one-sixteenth of a basis point, where a basis point represents one-hundredth of a percent.
- Prior to decimalization, a teenie was the smallest amount by which a security's price could move.
- Decimalization moved trading standards to base ten rather than base eight.
How a Teenie Works
A teenie was once the smallest amount by which a security's price could move and the smallest unit of a security that could be traded. In April 2001, the Securities and Exchange Commission ordered all U.S. stock markets to switch from using fractions in price quotes to the decimal system, a system called decimalization. Under this new system, a teenie is represented by .0625.
With decimalization, a teenie is no longer the smallest amount by which a security's price can move or the smallest unit of a security that can be traded. The new minimum is .01 cents. Because of this change, some traders now mean 1 cent when they use the term "teenie." Some traders (i.e., scalpers) use teenies in their strategies, but with decimalization, such strategies can be more difficult to profit from because spreads are typically smaller than .0625 cents.
Historical Pricing and the Teenie
The practice of pricing in eighths stretches back hundreds of years, when Spanish traders used gold doubloons to facilitate trade, which could be divided into two, four, or even eight pieces, and were countable by hand. Spanish traders decided that one’s thumbs would not be included for counting, so Spanish gold doubloons had a base of eight. So when the New York Stock Exchange (NYSE) was established about 200 years later, it was based on this Spanish trading system: Trade began with this base-eight denomination, and 1/8 of a dollar, or 12.5 cents, became the spread, or the smallest amount a stock could change in value.
In 1997, U.S. markets moved from the prior practice of quoting prices in eighths of a dollar to quoting in dollars and cents. In the book CNBC Creating Wealth: An Investor's Guide to Decoding the Market, published in 2001, the authors describe a “teenie revolution” in the chapter titled “Revenge of the Small Investor.” The “teenie revolution” describes the pricing move to sixteenths from eighths, which means that the spread between the bid can be significantly narrowed. This, the authors said, was “predicted to save individual investors as much as $2 billion per year.” The authors concluded that the move to teenies, and then decimals, is a “win-win situation for individual investors and professional traders alike,” explaining that for both groups, trading would cost less overall. Furthermore, the benefits of this “teenie revolution” meant that professional traders would risk more capital, setting the stage for greater liquidity.