Financial Markets For The Rest Of Us An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds |
Page 156 Fraction Versus DecimalWe have been covering quite a bit about buying and selling stocks. One issue you may have come across is the stock price formats themselves. How are fractional points dealt with in the market? If you are a veteran stock trader, you are perhaps familiar with the fractional price formats, for example 50 3/4, or 28 1/16. But lately you might have noticed that stock prices are also expressed in terms of decimals, for example 50.75 or 28.06. A quick review of elementary math would tell you that the prices used in our example are the same. The difference is in the expression. 3/4 is the same as 0.75 or 1/16 is the same as 0.06 (rounded). The fractional format is the type used traditionally in the stock market, and the decimal format is the type that the stock market has now adopted. Based on new rules, all stock prices are to be expressed in decimal formats, but for now both formats are considered valid. With the fractional format, prices can be expressed as low of an increment as 1/128th although this fraction is too small for some brokers to accept and many may not even accept the 1/64th format either. As a trader using the fractional format, you can probably use the 1/32nd fraction and higher - for instance to set your limit price on a stock. For example: $53 1/32 or $53 23/32 or $53 7/8. As of now both fractional and decimal formats are accepted, but going forward the decimal format will prevail and will be the only format used. One of the main reasons for the decimal format is to have stock prices in the same format as other goods and services. This brings stocks into alignment with the rest of the financial world such as banking where money is measured in dollars and cents. Another benefit is that now stock prices move in one cent increments rather than fractions, allowing for more orderly and fair transactions. So now you could set your limit prices in … |
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