At The Motley Fool, we always love to hear from our readers. One reader got in touch last week to ask why the London Stock Exchange still quotes UK stock prices in hundreds or thousands of pence and not pounds.
I found this question very interesting, so I decided to look into why UK stock prices are quoted in this way. Read on to find out what I discovered.
How are UK stock prices quoted?
On the London Stock Exchange, UK stock prices are quoted in pence. You’ll see this price when you’re trading shares.
So, the price of a stock could be quoted as ‘GBX 520’. This means the stock costs £5.20. Similarly, if a stock is quoted as costing ‘GBX 1,190’, it will cost you £11.90 to buy one share.
The sums can split into smaller values than pence too. For example, it’s possible for the price of a stock to be ‘GBX 400.5’. This would cost you £4 and half a penny to buy one share.
What is GBX?
GBX represents a form of currency. While GBP refers to Great British pounds, GBX refers to 1/100th of a pound or one penny.
Why are UK stock prices quoted like this?
There is no official explanation from the London Stock Exchange on its reasoning behind quoting UK stock prices in this way. However, there are a number of plausible explanations.
The UK is one of the only major economies that quotes its share prices in this way. Other countries, like the US, use dollars and cents for quoting their stock prices.
It is thought that the LSE’s system has roots in the old days of the pound – pre-1971. This was before the GBP was decimalised and one pound was worth 20 shillings. Each shilling was worth 12 (old) pence. This meant one pound was worth 240 pence.
Stock exchange quotations need to be reduced to the lowest sub-unit of currency – in this case, pence. It was much clearer to say ‘470 pence’ than ‘one pound, 19 shillings and two pence’.
It could also be expressed as 1.958 pounds, but this would be even more confusing as it doesn’t really have any relation to the actual currency.
Given it’s been over 50 years since decimalisation, it would make sense to change the process now. However, no system is simple to change. It seems to have worked for the past 50 years, so there is little desire to change it to reflect the decimalised currency we have at the moment.
Are there any other theories?
One theory is that most stocks are only worth a few pounds, so it makes sense to use a smaller currency unit. Some think it is easier to read a stock price as ‘102’, for example, rather than ‘£1.02’.
Many also believe that quoting UK stock prices in pence improves accuracy and reduces errors. Decimal points are easily missed out and people could find themselves buying £102 worth of shares rather than £1.02. This could clearly be an unfortunate – and costly – error!
Will the way stock prices are quoted ever change?
While some find this way of quoting UK stock prices frustrating, there doesn’t appear to be any clear movement to change it. However, it’s impossible to say that the practice will never change. It is more than possible we will see a change in the future, but it is not imminent.
For now, love it or loathe it, you will have to put up with UK stock prices being listed in pence rather than pounds.
The post ‘Why are UK stock prices quoted in pence not pounds?’ appeared first on The Motley Fool UK.
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