What is the minimum amount needed to begin investing in the stock market?
This surely is one of the most common questions newbie investors would like to know.
The short answer: the minimum amount needed is dependent on the PSE Board Lot, which determines the smallest number of shares one can buy or sell.
Continue reading to understand this in more detail.
The minimum amount of cash needed to invest in the stock market varies and depends 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.
PSE Board Lot Table
The Philippine Stock Exchange uses the following Board Lot table.
[TABLE=54]
The Minimum Fluctuations column shows the minimum increments that a stock price can change.
For example, if PLDT (TEL)’s stock price is currently P1,500, its price can move a minimum of P1.00 according to the Board Lot Table. This means TEL can, at a minimum, increase to P1,501.00 or decrease to P1,409.00. Its price cannot move by increments other than P1.00.
The Board Lot column, meanwhile, shows the minimum number of shares a stock can be bought or sold.
So for PLDT, looking at the Board Lot table again, at a price of P1,500 you can buy (and sell) a minimum of 5 shares. Given a stock price of P1,500.00, you’ll need P7,500 to initially buy the minimum five (5) shares.
Some more examples of how to determine the number of share you can buy or sell in the article How to read and use the “PSE Board Lot” table.
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.
If, for example, the minimum board lot for AC 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.
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