Why do options have only 2 decimals?

JSOP said:
Well go try to have option prices with four decimals or even ten decimals in your country China to see how it plays out and then talk.
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China is not my country, and China is not the topic here.
Just show me why 4 decimals in option prices is bad. I don't see any reason.
 
thecoder said:
China is not my country, and China is not the topic here.
Just show me why 4 decimals in option prices is bad. I don't see any reason.
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@Robert Morse just did and he is a veteran who has 25+ years of experience trading right on the floor of exchanges as investment dealers. If he tells you it doesn't work to have 4 decimal places for option prices from a practical point of view, it doesn't work but you don't want to listen.

China is the only country that's implementing options right now so it will be the perfect testing ground for your 4-decimal option price structure. So go implement 4-decimal option prices in one of those new exchanges in your country of China and it will show you why it doesn't work. Hopefully you will see then. Have fun!!
 
just look at jpy currency futures.
The current price is 0.00087545

it is the worst in terms of the number of digits.
I can't see it clearly.
 
Before going more than 2 decimals, the first step would be to go in pennies for all the names.
The penny pilot program almost killed the MM model. So clearly, the market doesn't want that.
 
1.05x1.06 = 95 basis point spread. You truly see no benefit in increasing precision?

Robert Morse said:
You want 16 options exchanges and option markets quoted out 4 decimal places? With the current fractured markets, it is hard enough to buy on the bid and sell on the offer with your order on one exchange while it can trade on another. Adding 3-4 decimal places would make it even easier to trade a small value lower/higher and not allow customers to participate. IMO, this is not in your best interest.
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That is precisely how markets should work. But right now you put in a buy limit at 3.45 when the market trades at 3.44x3.45 and for a myriad of reasons, other than markets having moved, you do not get filled. If every market participant, price taker and maker, had equal and fair access to the market and everyone could improve the limit price by sub penny levels then we would have way fairer and better markets. Right now and forever markets have been skewed to benefit insiders.

Robert Morse said:
It does not work well with stocks, IMO. We only offer that is stocks under $1.00. You bid $0.6501 for 2000 shares, a sell order comes into an equity Market maker, he can pay $0.6502 and shut you out. The same can happen in options.
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So you rather pay 1 or 2% spread because then you can see better?

maxinger said:
just look at jpy currency futures.
The current price is 0.00087545

it is the worst in terms of the number of digits.
I can't see it clearly.
More...
 
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the market wants that, the market makers don't want that. Very significant distinction.

rb7 said:
Before going more than 2 decimals, the first step would be to go in pennies for all the names.
The penny pilot program almost killed the MM model. So clearly, the market doesn't want that.
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No, because there are other factors with derivatives. Are you saying you prefer 1.0590x1.0592 1 x 1 or 1.05x1.06 100x100? That is just one result of this. The other is the ability to for a MM to step in front of you by $0.0001 and you do not get to buy on the bid or sell on the offer until the stock moves, and prices change. Referring to the comment by JSOP, I have been in the business since 1981 and was an AMEX MM from 1985 until 2010. Single listed wide spreads were awesome for MMs but not for customers. Removing fractions and adding $0.05 and $0.01 spreads was bad for MMs and great for the public. IMO, 16 option exchanges is terrible for the public. As a customer, I prefer the CME model with one order book and price discover. The best would be price/time priority. My bid at that price, I get filled before others. That would encourage tighter markets and fairness. This is all just my opinion.

breadcrum said:
1.05x1.06 = 95 basis point spread. You truly see no benefit in increasing precision?
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