PSE board lot and what is 8k rule?

Updated by

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.

PSE 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.

DetailsAmount
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.

What is Odd Lot?

Sometimes, investors may opt to buy a number of stocks is less than what’s stated on the Board Lot. At times, it can be allowed. However, such an order must be made within the “continuous trading period,” and even partial matching can be done.

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.

A breakdown of the charges when trading stocks: broker's commission, value added tax, Philippine Stock Exchange transaction fee, SCCP (Securities Clearing Corporation of the Philippines) fee, and sales tax (for selling) shares in the stock market.
Fees, charges, and taxes when trading stocks in the Philippines.
  • *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 commission to stock brokerage firm. It is the amount from whichever is higher between ₱20 or 0.25% of your total investment. This is the typical commission for online stock brokers, and the amount is higher when you avail of assistance of a human broker.

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.

Php 8,000 is the recommended capital in buying shares from the Philippine stock market.
By investing at least Php 8,000, you can minimize the cost in investing in the stock market in the Philippines.

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.

(It is noteworthy to mention that some demur from the above recommendation. You can click the link at the end of this article to read the full discussion why it may be reasonable to invest in small amounts rather than wait for the money to reach ₱8,000.)

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 offset a higher broker’s fee. Dan from Freedom Locker PH provides an interesting take on the 8k rule by Freedom Locker PH, and why you might be missing out the opportunity to earn when delaying investment no matter how small.
Tags

Read next

30 thoughts on “PSE board lot and what is 8k rule?”

  1. Hi.
    Can I seperate the minimum 8k to several stocks, or this only applies to single stock purchase transaction?

      1. If i have only about 8k is it still better to diversify my choices in stocks or should I buy 8k in a single stock?

        1. The 8k recommendation (in order to minimize cost) is for one order, so that’s shares of the same company. But if you don’t mind the cost, then you definitely can utilize Php8k in buying shares from different companies.

  2. Hi, how about in Mutual Funds, is there a minimal amount to invest as well so I won’t get that much loss from commissions?

    1. Hi, Air. No, it’s only applicable when you buy stocks from the exchange. Examples of stocks are Jollibee and FMETF. Equity index funds like mutual funds, UITFs, etc have minimum starting capital.

  3. Just a random inquiry, do you guys have a contact with a good funds manager? Maybe you can recommend me someone.

  4. Thank you so much for this, i learned a lot from your website! I do want to ask though, does this apply for FMETF? Also, do I have to make a monthly investment when i invest in FMETF or can i just put a huge amount of money and leave it there?

    1. Hi Sophia Garcia. Yes, this applies to FMETF too. Choosing between monthly or lump sum investment is a choice only you can make. All the best.

  5. Off the topic Inquiry, does Equity Index Fund (ex. Philippine Stock Index Fund, Philequity PSE Index Fund, Sun Life Prosperity Philippine Stock Index Fund and PAMI Equity Index Fund) pay dividends?

  6. Hi, Pesolab! If I buy 1,000,000 shares of stock currently trading at 1 peso per share, will these shares also be broken up into lots that are being sold to me? And what are the chances that I’ll be actually paying 1 peso per share for all 1M shares and not higher for most of them?

    1. Hi. Not sure what you mean by “broken into lots.” However, your broker will take your order and try to fulfill it. The chances of buying a million shares at Php1 apiece is dictated by liquidity: is there someone looking to sell that many shares at that price? If no, then you have the option to break your order into tranches at different price points so that your average price is more or less Php1.

  7. Hello, I would just like to clarify that those fees will be all added and taken from my money? By 1980 there still VAT and the remaining fees that would be deminished from this right? And if I buy stocks in the overseas market I am not going to be paying some of the fees? And which one of those? Than kyou

    1. When buying, charges are paid on top of the order. When selling, the charges and taxes will be taken off from the gross trading amount of your order.

  8. Hi! thanks for sharing this information it helps me a lot. I would like to ask is it better to buy small amount like DMCI Holdings at PHP 5.50 per share so if I have PHP 10,000.00 I will have 1,118.18 DMC shares or bigger amount like Jollibee at PHP 176.90 per share so I will have 56.53 JFC shares?

    Thank you in advance!

    1. Hi Katrina. If you’re just looking at price per share, then there is no difference. Imagine when both stocks DMC and JFC rise by 10% at the same time, you would still gain 10% on your investment regardless if you’ve only invested in only one of the two. Hope this helps.

  9. Hi! Thank you for sharing informative content. Just to confirm, is this applicable when you have higher capital to invest in? such as buying stocks amounting to Php50,000 on a single transaction. Or would you suggest breaking it down to multiple transactions (8k rule)? As I see in one of the brokerage summaries, transactions amounting to Php20,000 (and up) would cost Php 50 commission. Thank you!

    1. 1st question: You don’t have to break your investment to 8k per transaction. Paying the least commission occurs when transaction is AT LEAST 8k. 2nd question: 0.25% of Php20,000 is Php50, so that sounds about right.

  10. Thanks for the post! The 8k rule is good, but not when it’s the reason beginners hesitate to invest. Here’s what I’ve found. When you expect the annualized returns to be around 7%, which is actually a reasonable assumption, then it’s more profitable to invest now (even in smaller amounts) than wait to accumulate 8k. I call this the 7% rule. You may find the explanation in this blog post: https://freedomlocker.ph/personal-finance/8k-rule-pse-stock-market-7-percent/

Write a comment

Thanks for leaving a reply.

We encourage you to keep the conversation engaging, safe, and meaningful. Your email address will not be published on the website. Please avoid the use of keywords on the name field. All comments are subject to approval before being posted to the message board. For more information, please visit our comment policy.