/investing11-5bfc2b90c9e77c00519aa65f.jpg "Board Lot Definition 1")
What Is a Board Lot?
A board lot is a standardized variety of shares outlined by a inventory alternate as a buying and selling unit. Usually, this implies 100 shares.
A board lot is what the alternate determines to be a spherical lot. The aim of a board lot is to attenuate buying and selling “odd heaps” and to facilitate simpler buying and selling. It is tougher for a dealer to discover a purchaser for, say, 17 shares, if all people agrees to commerce in 100 share heaps. With the arrival of environment friendly on-line buying and selling and fractional shares, nonetheless, odd lot buying and selling is much less of a problem than it has been prior to now.
Key Takeaways
- A board lot is what a inventory alternate determines as its customary buying and selling unit for spherical heaps.
- The concept behind board heaps is to facilitate extra environment friendly buying and selling by defining blocks of shares for buying and selling, as an alternative of getting a random assortment of wierd heaps being traded.
- Board heaps can result in tighter spreads and extra liquidity, though digital buying and selling and on-line brokers have diminished the necessity for board heaps.
Understanding Board Heaps
The scale of a board lot will range. A inventory alternate may outline one board lot as equaling 1,000 shares for shares priced underneath $1, and 100 shares for shares valued at greater than $1. The considering is that standardization will increase liquidity, thus decreasing spreads and making the market extra environment friendly for everyone.
Tighter spreads and extra liquidity results in decrease transaction value, which traders of all varieties want. Though most securities bookkeeping right now is finished electronically, fractional possession percentages nonetheless pose an administrative burden. As such, economies of scale want safety heaps to come back in bigger increments.
At some buying and selling venues, the board lot is delineated in models of 100 shares. On different exchanges, the board lot dimension may be a lot greater. For example, the usual board lot on the Hong
Kong Exchanges and Clearing Restricted (HKeX) was modified from 8,000 shares to 24,000 shares in
Feb. 2019.
For sure hedging purposes or different extra superior buying and selling methods, shopping for or promoting in increments of 100 is perhaps sub-optimal; in these cases, it would make sense for an investor to make use of a full-service dealer to dial in the correct quantity of securities—no extra and at least what is required.
It isn’t unusual for voice or low cost brokerages to restrict customers to spherical heaps as a part of their service agreements. On-line brokerages and digital buying and selling, nonetheless, have steadily diminished the inefficiency and value related to odd heaps. Because of this, the necessity for board heaps has decreased dramatically over the previous decade.
Instance of Board Heaps
Not like the U.S., the place board lot sizes are usually standardized to 100 shares, the Toronto Inventory Alternate (TSX/TMX) has variable board lot sizes which are depending on the worth of the safety. They’re outlined within the Common Market Integrity Guidelines (UMIR) that govern buying and selling practices in Canada.
The rules are as follows: If the buying and selling value per unit is lower than $0.10, the board lot dimension is 1,000 models. If the buying and selling value per unit is $0.10 to $0.99, the board lot dimension is 500 models. When the buying and selling value per unit is $1.00 or extra, the board lot dimension is 100 models.