A board lot is a standardized number of shares defined by a stock exchange as a trading unit. In most cases, this means shares. A board lot is what the exchange determines to be a round lot. The purpose of a board lot is to minimize trading " odd lots " and to facilitate easier trading. It's more difficult for a broker to find a buyer for, say, 17 shares, if everybody agrees to trade in share lots.
With the advent of efficient online trading and fractional shares , however, odd lot trading is less of an issue than it has been in the past. The size of a board lot will vary. The thinking is that standardization increases liquidity , thus lowering spreads and making the market more efficient for everybody.
Tighter spreads and more liquidity leads to lower transaction cost, which investors of all varieties prefer. Although most securities bookkeeping today is done electronically, fractional ownership percentages still pose an administrative burden. As such, economies of scale prefer security lots to come in larger increments. At some trading venues, the board lot is delineated in units of shares. On other exchanges, the board lot size can be much higher.
For certain hedging applications or other more advanced trading strategies, buying or selling in increments of might be sub-optimal; in these instances, it might make sense for an investor to use a full-service broker to dial in the right amount of securities—no more and no less than what is needed. It is not uncommon for voice or discount brokerages to limit users to round lots as part of their service agreements.
Online brokerages and electronic trading, however, have steadily reduced the inefficiency and cost associated with odd lots. As a result, the need for board lots has decreased dramatically over the past decade. Unlike the U. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
Select Your Region. Your information is safe and secure with us. Please complete this form and click the button below to subscribe. What This Means for Investors Rather than speculating in riskier penny stocks, investors now have safer blue-chip options to include in their stock portfolio Young investors who typically have less capital can now afford a wider range of stocks than previously available The lower minimum lot size will improve liquidity and trading volumes for the overall market Investors with odd lots less than 1, shares previously can now trade them in the regular market instead of the odd lot market, where share prices are traded at a discount.
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