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Definition: Eighthed

A term used in a situation in which one trader or broker offers lower or outbids another's ask or bid respectively by one-eighth of a dollar (12.5 cents). This term can be considered derogatory since it may imply an effort to steal a trade by a slight change in price.

In the equity markets, the word is no longer in us, as the quotation of a share is no more to an eighth of a dollar. Being eighthed is similar to bidding one penny more on the ‘Price Is Right’. If your bid or offer is more attractive than the next person's, the level to which it is fairer is not relevant. This almost always makes the other bidder feel that he is wronged, but that is how the game is played.

For example, let's consider a company Z is a very big pension fund that intends to buy 100,000 stocks of A company from the B pension fund. The B pension fund is attempting to sell the stocks in the upstairs market - which means privately, between two parties and not on the open market since it believes that the buying-selling would have a significant impact on the value of the A shares and then it would be impossible to unload all the shares in one go. Suppose, company Z is offering $10 a stock for buying. Everyone comes to know that B pension is unloading its A Company shares, and another company, C pension fund makes a decision to buy the shares. It offers $10.125 per stock and successfully closes the deal. At this point of time we can say that company Z has been eighthed.

Since the shares are no longer traded in eighths of a currency, this term is seldom used or heard, but whenever it is, it almost always refers to having been undercut or outbid by extremely small fractions.

Hence, this concludes the definition of Eighthed along with its overview.


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