From Fractions To Decimalization, The Evolution Of Market Pricing

Beginning in 1792, going way back to when the New York Stock Exchange was created through the Buttonwood Agreement, stocks were not priced in decimals, but in fractions.

The Buttonwood Agreement was enacted to eliminate auctioneers and consolidate control of the market for publicly traded securities into the brokerage houses we know today.

For centuries, the lowest fraction that could be used was 1/8th, which derives from the Real being divided into 8 parts. Today this might surprise most day traders who are used to seeing an average spread of about 1 penny.

As you can see in the map pictured below, Spain was the most dominant market force in the America’s at the time.

As the velocity of the market increased with the advent of computers, people soon realized that fraction based pricing had the unintended effect of restricting liquidity. They can also be hard to mentally calculate, so to solve this problem, the Common Cents Stock Pricing Act was introduced in 1997, which decimalized stock prices

Read more @ Forbes.

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