Decimalisation and Fractional Pricing

For most of their history, U.S. stock exchanges quoted prices in fractions of a dollar — typically eighths ($0.125) and later sixteenths ($0.0625) — a convention inherited from old Spanish currency practice rather than anything to do with modern trading needs. In 2001, U.S. markets fully switched to decimal pricing, quoting stocks in cents ($0.01 increments) instead.

The change mattered far beyond notation. The minimum tick size — the smallest allowed gap between quoted prices — shrank from 1/8 or 1/16 of a dollar down to a single cent, letting bid-ask spreads compress dramatically, since market makers were no longer forced to quote spreads at least as wide as the old fractional minimum. Retail and institutional investors benefited directly from these tighter spreads, since every trade crossing a narrower spread costs less. But market makers, who had earned much of their profit from that wider mandated spread, saw a corresponding drop in per-trade revenue, which pushed the market-making business toward much higher volumes and more automated, high-frequency strategies to remain profitable at the new, thinner margins.

Decimalisation is a standard example of how a seemingly small market-structure rule (the size of the minimum price increment) can reshape the economics of an entire market ecosystem, and it's frequently cited as one of the structural pushes that helped high-frequency trading grow from a niche practice into a dominant share of U.S. equity volume in the years that followed.