Board lot: The minimum amount to buy stocks from PSE

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How much do you need to start buying stocks from the Philippine Stock Exchange (PSE)? Is there a minimum amount when you invest? In this article, I’m going to answer these questions.

More than that, I’ll try to explain why you should listen to long-time traders when they said that P8,000 is considered best practice and why it should be your minimum when you start buying company shares from the Philippine Stock Exchange.

Minimum board lot

So let’s answer the first question. What’s the minimum amount?

There’s actually no definite answer. That’s because there is a rule that dictates how much you need to acquire stocks.

According to the Philippine Stock Exchange, you have to follow what is stated in the minimum board lot as shown in the table below.

PSE minimum board lot

As you can see, the minimum amount depends on the stock price and the required no. of shares.

So for example, 2GO Group Inc. (the first in the alphabetical order of publicly listed company) has a stock price of ₱10.20 as of September 2019. Looking at the table, you’re required to buy 100 shares. Your total minimum investment amount is P1,020.

2Go price₱10.20
Required shares100
TotalPrice x Required shares
1,020 

When you invest in any stocks, your stock broker’s trading platform automatically computes the amount for you.

Why ₱8,000 is recommended minimum investment

However, experts will tell you that you should not invest according to what the board lot tells you. The reason: you’re going to be on the losing end of the deal.

Why? Because of fees.

As you may already know, every time you buy or sell stocks in the stock market you would have to pay fees, charges, and taxes. Please see the table below.

FeesAmount
Broker’s Commission₱20 or 0.25%, whichever is higher
VAT 12% of Commission
PSE Transaction Fee0.005%
SCCP* Fee0.01%
(Sell) Tax**0.6%
  • *SCCP is Securities Clearing Corporation of The Philippines
  • **When you sell, you will have the same fees plus the tax of 0.6%

When you purchase stocks, you have pay the broker’s commission. It is the amount from whichever is higher between ₱20 or 0.25% of your total investment.

There is also a value added tax representing 12% of the broker’s commission. Other charges include PSE transaction fee (0.005%) and SCCP fee (0.01%). The taxes are deferred. Meaning, you’d only have to pay 0.6% when you sell your stocks. All of these would be charged to your account regardless if you made money from your investment or not.

So how do experts agree on the ₱8k minimum?

This amount is based from the broker’s fee, which starts at ₱20 to 0.25% of the total invested amount. In order to keep the commission at its lowest, you would want to know the least amount where the commission remains at 0.25%.

By dividing ₱20 ÷ 0.25%, you actually get ₱8,000. See the table below for more details.

Invested amountBroker’s commissionPercentage
1,000.00 20.002.0000%
2,000.0020.001.0000%
3,000.0020.000.6667%
5,000.0020.000.4000%
8,000.0020.00 0.2500%
8,500.00 21.250.2500%
9,000.0022.500.2500%
9,500.00 23.750.2500%

From the table, you may notice that as you go lower than ₱8k, the bigger the portion goes to the commission. But if you invest equal to or higher than ₱8k, the cost of obtaining a stock remains at 0.25%.

Is it advantageous to follow the 8k minimum all the time?

The answer seems pretty obvious. As you can see from the example above, the lower the amount being invested the higher the cost becomes.

However, you may have some doubts. That is why we will try to answer if it is beneficial to follow the expert advice of investing at least ₱8,000. We will look at peso cost averaging. Three scenarios are drawn up to see the effect of broker’s commission on capital, as well as gains (or loss) in a rising stock/market and in falling stock/market in a span of a year.

Scenario 1: Effect on capital

Let’s imagine that you can only save ₱2,000 every month. You have two choices: should you invest monthly or should you wait until you can accumulate ₱8,000? Here are some of the assumptions in this scenario.

  • Only the broker’s fee is considered. All other fees and taxes are excluded.
  • The period covers one year.
  • You’re investing ₱2,000 per month in one case, and in another case you’ve waited four months until your money reaches the minimum before you invest.

See the table below.

Month2k capital8k capital
January1,9807,980
February1,980
March1,980
April1,980
May1,9807,980
June1,980
July1,980
August1,980
September1,9807,980
October1,980
November1,980
December1,980
Total23,76023,940

The table supports the result of the earlier example. Capital is better preserved when the recommended minimum is observed. You’re able to accumulate ₱23,940 versus ₱23,760 in the course of 12 months.

Scenario 2: Effect for a falling stock or market

Suppose that you are investing when the stock or in the case of index funds, the market is falling.

In this scenario, we will invent a stock whose price starts at ₱1.00 at the beginning of the year and decreases ₱0.05 in each month. The goal is to see which situation you’re better off. Are you better off saving ₱2,000 per month or waiting until you’ve got enough money to reach the minimum amount?

Here are some assumptions.

  • All stocks are sold at the end of the year at a loss.
  • Only the broker’s fee is considered, including redeeming the stocks.
  • Falling stock price decreases by ₱0.05 monthly.

See the table below.

MonthStock price2k CapitalBalance8k CapitalBalance
Jan 1.001,980 7,980
Feb 0.951,980 3,861
Mar 0.901,980 5,638
Apr 0.851,980 7,305
May 0.801,980 8,855 7,980 14,364
Jun 0.751,980 10,281
Jul 0.701,980 11,576
Aug 0.651,980 12,729
Sep 0.601,980 13,730 7,980 18,753
Oct 0.551,980 14,566
Nov 0.501,980 15,222
Dec 0.451,980 15,680
End of year 0.40 13,937 12,502
Redeemed 13,902 12,472

The table shows that in a falling stock or market, it may seem like you are better off investing a little consistently rather than saving up the recommended amount.

The result that you see here is a typical price history when you follow the peso cost averaging strategy at a time the stock that you invest in or the market (in the case of index funds) is going down. The risks of getting lower value of your portfolio are spread. That is why under ₱2k capital, you end up getting ₱13,902 while under ₱8k capital you only get ₱12,472.

That is a difference of ₱1,432.

However, it is important to note that you’re still paying more to the brokers when you don’t invest at least ₱8,000. Why? Because the first scenario of capital preservation still holds. You’re still paying 1% fee for each time you invest ₱2,000 compared to only 0.25% when you meet the recommended amount. This fact however is overshadowed by the effect of spreading the risks in peso cost averaging.

One more caveat: in reality, stock prices don’t follow such a predictable rate of decrease.

Scenario 3: Effect for a rising stock or market

Now, let’s imagine that the stock price or market is rising. Just like the previous scenario, we will invent a stock whose price appreciates by ₱0.05 every month. See below the assumptions.

  • All stocks are sold at the end of the year.
  • Only the broker’s fee is considered, including redeeming the stocks.
  • The stock price begins at ₱1.00 and increases ₱0.05 monthly.

See the table below.

MonthStock price2k CapitalBalance8k CaiptalBalance
Jan1.001,9807,980
Feb1.051,9804,059
Mar1.101,9806,232
Apr1.151,9808,496
May1.201,98010,8457,98017,556
Jun1.251,98013,277
Jul1.301,98015,788
Aug1.351,98018,375
Sep1.401,98021,0367,98028,462
Oct1.451,98023,767
Nov1.501,98026,566
Dec1.551,98029,432
End of year1.6030,38132,528
Redeemed30,30632,447

As you can see, you’re better off saving up your money for a bit longer rather than investing it a little every month. In this scenario, you get ₱32,447 when you meet the recommended amount and ₱30,306 when you invest ₱2k monthly.

In reality, stock prices don’t increase in a consistent manner.

Take-away

Investing in the stock market is exciting and also risky. And the first ever lesson to learn is to never lose capital. One way to do that is to keep your costs in trading at the minimum and invest with a capital of at least ₱8k. This way, you get to maximize your investment.

In all three scenarios indicated above, meeting the minimum keeps the cost of investing low. In a market or stock with falling value, peso cost averaging may spread the risk but you’re still effectively paying more to commissions. In a market or stock with rising value, you’re in a better position when you follow expert advice. (It is crucial to mention that no one can predict the market, and generally equities are going to appreciate in value in the long-term.)

However, this is a recommended practice. It is hardly an edict that must be observed all the time. It is up to the individual investor to decide what strategy to follow.

Hence, going below the recommended amount can be understandable such as:

  • First time investors who have little cash to spare
  • When you believe that the potential returns are such that you don’t mind paying a higher broker’s fee, and that you’d feel bad if you’re going to miss out on the opportunity.
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