Stocks Basics 3: How much do I need to invest in the stock market?

What is the minimum amount needed to invest in the stock market?

Trading stocks is done though board lot or round lot system, which means there is a minimum number of shares one can buy or sell at a specific price range.

Therefore, the minimum amount needed to invest in the stock market varies and will depend on the market price of the stock as well as its corresponding board lot. The board lot differs as the price of stocks move through a scale of minimum fluctuations.

The Philippine Stock Exchange uses the following Board Lot Table:

Price	Minimum Fluctuations	Board Lot
0.001 - 0.0024	0.0002	1,000,000
0.0026 - 0.0050	0.0002	1,000,000
0.0055 - 0.0100	0.0005	1,000,000
0.0110 - 0.0250	0.001	100,000
0.0260 - 0.0500	0.001	100,000
0.0525 - 0.1000	0.0025	100,000
0.105 - 0.2500	0.005	10,000
0.2600 - 0.5000	0.01	10,000
0.5100 - 1.000	0.01	10,000
1.020 - 2.500	0.02	1,000
2.550 - 5.000	0.05	1,000
5.10 - 10.00	0.10	1,000
10.25 - 25.00	0.25	100
25.50 - 50.00	0.50	100
50.50 - 100.00	0.50	100
101.00 - 250.00	1.00	10
252.50 - 500.00	2.50	10
505.00 - up	5.00	10

The Minimum Fluctuations column show the minimum increments that a stock price can change.

Let’s use, for example, PLDT (Stock Code: TEL)’s closing price in November 9 which is P2,995. This price can move a minimum of P5 according to the Board Lot Table. That means TEL can, at a minimum, increase to P3,000 or decrease to P2,990. Its price cannot change to P2,998 or P2,992.50.

The Board Lot column shows the minimum number of shares a stock in a particular price range can be traded.

For example, Philex Mining Corporation (Stock Code: PX) closed in November 9 at P11.25. Its price falls under the “10.25 - 25.00″ range. Its minimum board lot, then, is 100, which means anyone who wants to buy or sell PX should trade a minimum of 100 shares.

If the price of PX drops to, say, P9.25, it now falls under the “5.10 - 10.00″ range, which means the minimum number of shares to be traded becomes 1,000.

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What are “odd lots”?

There are cases when a company issues stock dividends rather than cash dividends. Stock dividends increase the number of a stocks owned by a shareholder.

Say Ayala Corporation (Stock Code: AC) decided to issue a 5% stock dividend. If you currently own 500 shares of AC, you will get an additional 5% of your stock holdings, that is, an additional 25 shares for a total of 525 shares.

The minimum board lot for AC (with Nov. 9 closing price of P590) is 10 shares. You can thus sell 520 shares of AC in a normal transaction, but the remaining 5 shares will be considered an odd lot.

An “odd lot,” by definition, is an amount of a security that is less than the normal unit of trading for that particular security. It is also called broken lot or uneven lot. You can still sell odd lots but you might need to pay a higher commission rate compared to round-lot trades or it might be sold at a relatively lower price than the current market price.

Other references:

• Stock Trading 101: Guide and Tutorial to Stocks
  
• Other stock trading articles in PMT
• Discussion Forum on Stock Trading

Note: This is the third of several parts of Pinoy Money Talk’s primer on how to earn from trading and investing in the stock market, particularly the Philippine stock market.

Article source: Philippine Stock Exchange. Photo Credits: FreeImages.co.uk

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