The New York Stock Exchange’s price quote switch will narrow spread for investors
It was an event that you heard little of, with benefits you probably haven’t noticed. Earlier this year, the New York Stock Exchange made a change. After almost two hundred years of quoting prices in fractions, the “Big Board,” as it’s called in Wall Street circles, switched over to decimals.
As far as the world’s stock markets go, the move was long overdue. Until the announcement this past July, the U.S. was the only major country whose stock markets still marked prices in fractions. For the NYSE, it was a practice dating back to the 1800s and one that continued even after the Exchange installed a centralized stock-quoting device back in the 1920s.
So how does that do you any good? Well, you won’t see a change in the newspapers, at least not until next spring. The real benefit, however, will come on the trading floor. Working with decimals allows the NYSE, which has traded down to increments of 1/8 of a dollar or 12.5 cents. to now narrow that gap to 1/16 of a dollar or 6.25 cents. Trading in smaller amounts will narrow the “spread” or gap between a bid and ask price for any given stock–that is, what a seller looks to receive and what a buyer wants to pay, essentially cutting that margin in half.
It won’t be marked on the receipt you get for your next stock purchase or on your mutual fund’s quarterly statement, but it’s a matter that, over time, should help lower trading costs for mutual funds and individual investors.