Understanding the Basic: What is a Board Lot?
When you enter the exciting world of trading, numerous terms might seem confusing. One such term is the Board Lot. A Board Lot is a traditional trading unit referring to a set number of shares defined by the stock exchange. This standardization simplifies trading and provides harmony in the stock market operations.
Historical Background of Board Lot
The concept of Board Lot dates back to the old days of physical stock trading when securities used to be traded in physical bundles. These days, with the advent of electronic trading, the relevance of Board Lot is gradually declining. Yet, it's essential to understand this term, especially if you're trading on international markets, where the concept may still be prevalent.
How Does a Board Lot Work in Trading?
The size of a Board Lot varies from one exchange to another and is also influenced by the security's price. In many stock exchanges, the general rule is that stocks priced less than a dollar are traded in Board Lots of 500, 1000, or 5000 shares. Stocks priced over a dollar usually trade in Board Lots of 100 or 200 shares.
The Limitations of Board Lots
Although, Board Lots tend to limit the flexibility of investors. If you're an investor looking to buy a specific number of shares that is not in even Board Lots, it can pose a challenge. Moreover, stocks of popular companies may have a higher Board Lot size which could be costly for small investors.
The Future of Board Lots in Trading
While the importance of Board Lots is decreasing with the increasing dominance of electronic trading, it still holds some relevance. Understanding Board Lots will always improve your knowledge of how markets operate and facilitate better decision-making.
Conclusion: Making Sense of Board Lot
In conclusion, a Board Lot refers to the standard number of shares set by a stock exchange for trading. While it may seem complicated to a trading novice, it's quite simple once you understand its purpose. Happy trading!
