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How do you settle the purchase of one share with a price of 20.0006? It’s a price. You can’t really go lower than monetary units. If you round it, you create a
by cm2187 6y ago
How do you settle the purchase of one share with a price of 20.0006? It’s a price. You can’t really go lower than monetary units.
If you round it, you create a risk free arbitrage opportunity.
- dm3 6y agoThere are already contracts trading at fractional cent prices. For an example see treasury bonds listed on CME. According to CME document[1] margin and option premium calculations round the amount to nearest cent. I suppose the same happens at settlement. [1] https://www.cmegroup.com/trading/interest-rates/files/TreasuryFuturesPriceRoundingConventions_Mar_24_Final.pdf https://www.cmegroup.com/trading/interest-rates/files/Treasu...
- cm2187 6y agoBut then you can arbitrage it. Buy 10,000 times 1 share, sell 10,000 shares. You can't really do that in the bond market, but you can in the equity market.
- dm3 6y agoI think practically this would have to be solved by the equity brokers. All the intermediary accounting done in fractions and only rounded once cash leaves the broker.
- egwor 6y agoHow's this different from in FX where someone buys EURUSD in USD quantity? Venues trade EURUSD not USDEUR. So they want to trade 1000 dollars. Current fx rate is 1.18162. So that's 846.2957634434 euros. Minimum settlement in euros is 1 cent, so what is done with the 0.57 of a euro cent or what happens to the difference between 1000 USD and 999.9931898? I think the answer to this is bankers rounding.
- cm2187 6y agoIt's called an "FX Rate" not an "FX price". You apply a rounding as part of the transaction. The amount settled is not a rate, it is a monetary amount. The price quoted on the market is the amount settled for one share. If it is not, then it is not really the price of one share.