Board lot
Board lot is the number of shares that are sold in package. Board lots make trade easier for brokers. For low value shares board lots are bigger, e.g. for shares less than €1 board lot can be 1000 shares. For high value shares board lots are smaller, e.g. for shares more than €10 it can be 10 shares.
The board lot helps decrease transaction costs. It also removes very small investors from the market. If the board lot is too big, investor can ask broker for help. Broker can find several investors that will buy one board lot.
Example board lot from Philippines Stock Exchange:
| Price in pesos | Board lot |
| 0.0001 to 0.0099 | 1,000,000 |
| 0.010 to 0.049 | 100,000 |
| 0.050 to 0.249 | 10,000 |
| 0.250 to 0.495 | 10,000 |
| 0.50 to 4.99 | 1,000 |
| 5.00 to 9.99 | 100 |
| 10.00 to 19.98 | 100 |
| 20.00 to 49.95 | 100 |
| 50.00 to 99.95 | 10 |
| 100.00 to 199.90 | 10 |
| 200.00 to 499.80 | 10 |
| 500.00 to 999.50 | 10 |
| 1,000 to 1,999 | 5 |
| 2,000 to 4,998 | 5 |
| 5,000 to UP | 5 |
Board lot usage
Board lot is commonly used in companies to facilitate trading of their shares on a stock exchange. When a company first goes public, it will typically issue a certain number of shares and list them on an exchange. These shares can then be bought and sold by investors on the exchange. The board lot system is used to standardize the number of shares that are traded in a single transaction, making it easier for buyers and sellers to find each other and complete a trade.
For example, a company may have issued 1 million shares and listed them on an exchange with a board lot size of 100 shares. This means that when an investor wants to buy shares of the company, they must buy at least 100 shares at a time. Similarly, when an investor wants to sell shares of the company, they must sell at least 100 shares at a time. This helps to ensure that there is a consistent level of demand for the shares and that trades can be executed more efficiently.
Additionally, companies can use the board lot system to limit small investors participation in the company, as well as to reduce the transaction costs by limiting the number of times shares are traded.
Summary
A board lot, also known as a round lot, is a standardized number of shares that are traded on a stock exchange. The size of a board lot can vary depending on the stock being traded and the stock exchange. For example, on some exchanges, a board lot for shares valued at less than $1 may be 1,000 shares, while for shares valued at more than $10 it may be as low as 10 shares. This system helps to make trading more efficient for brokers and reduces transaction costs. It also has the effect of limiting the participation of very small investors in the market, as they may not be able to afford to purchase a full board lot on their own. In such cases, investors can seek the assistance of a broker who can help them find other investors to purchase a full board lot together.
Examples of Board lot
- For stocks trading on the NYSE, the board lot is usually 100 shares.
- For stocks trading on the NASDAQ, the board lot is usually 10 shares.
- For stocks trading on the London Stock Exchange, the board lot is usually 3 shares.
- For stocks trading on the Toronto Stock Exchange, the board lot is usually 1,000 shares.
- For stocks trading on the Tokyo Stock Exchange, the board lot is usually 100 shares.
Advantages of Board lot
A board lot provides several advantages to traders and brokers by making trade easier. These advantages include:
- Increased liquidity, as a board lot allows for a standardised amount of shares to be traded at once. This makes it easier for brokers to match buyers and sellers.
- Reduced transaction costs, as trading a large number of shares in one go is more cost effective than trading a small number of shares several times.
- Easier to track and monitor, as board lots are easier to track and monitor than individual trades. This makes it easier for brokers to keep a record of trades and ensure they comply with regulatory requirements.
- Lower risk, as trading in board lots reduces the risk of volatility and price fluctuations.
- Greater control over the market, as larger trades are more likely to move the market and influence the price.
Limitations of Board lot
- Board lots can create a barrier for small investors as they have to purchase more shares than they might need.
- Board lots can also create a problem for large investors as they have to purchase more shares than they might need.
- Board lots can lead to an increase in the spread between bid and ask prices, as investors have to purchase a set number of shares in order to participate in the market.
- Board lots also limit the liquidity of the market, as investors can only purchase a set number of shares at one time.
- Board lots can also lead to a decrease in the market efficiency, as investors may not be able to purchase the exact number of shares they want.
A board lot is a set number of shares that can be bought or sold in a single transaction. In addition to board lots, there are several additional approaches used in trading to make transactions easier for brokers. These include:
- Block Trade: A block trade is a large, usually private, transaction between two parties. It is usually used to buy or sell a large number of shares in a single order.
- Odd Lot: An odd lot is an order for less than the standard board lot size. It is used when an investor does not have enough money to buy the standard board lot.
- Dark Pool: Dark pools are private exchanges where buyers and sellers can anonymously trade large blocks of stock without the public knowing the price and size of the order.
In summary, board lots are a set number of shares that can be bought or sold in a single transaction. Other approaches used in trading to make transactions easier for brokers include block trades, odd lots, and dark pools.
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References
- Travlos, N. G., Trigeorgis, L., & Vafeas, N. (2015). Shareholder wealth effects of dividend policy changes in an emerging stock market: The case of Cyprus.
