【TEJ Dictionary】What Is Odd Lot Trading? TEJ Will Introduce You To It From The Ground Up.

Published in

TEJ Dictionary

6 min readAug 23, 2024

Preface

Odd lot trading is all about buying and selling smaller amounts of stock that don’t add up to a full trading unit (usually 1,000 shares). So, instead of needing a lot of money to buy a full unit at once, you can start with a smaller amount of shares. This is super handy for anyone with a limited budget who still wants to get into stock investing!

Picture this: you’ve got your eye on a company’s stock, but the cost of a full trading unit is just too high. That’s where odd-lot trading comes in! You can kick things off by buying just a few shares and then add more as you save up. This approach not only lowers the entry cost but also gives you more flexibility to spread out your investment risk.

In a nutshell, odd-lot trading makes investing easier and more flexible, so you can get in the game no matter how much money you have and start putting your cash to work !

Odd lot Trading Methods

Trading Place

Investors can trade using various platforms offered by major brokerage firms in Taiwan. Transactions can be conducted directly through online platforms and mobile apps.

Trading Hours

Based on the timing of transactions, odd lot trading is divided into intraday and after-hours trading :

Intraday odd-lot trading : This occurs on trading days from 9:00 AM to 1:30 PM. The first matching occurs at 9:10 AM, followed by matching every minute using a call auction method.
After-hours odd-lot trading : This takes place on trading days from 1:40 PM to 2:30 PM, with only one matching at 2:30 PM using the call auction method.。

In terms of order of execution, whether during intraday or after-hours trading, “price priority” is the key rule. However, when prices are the same, intraday trading is determined by time — whoever’s order is placed first wins! In contrast, after-hours trading is different; the order of transactions is randomly determined by a computer, giving everyone a fair chance without having to race against the clock!

Method of Calculating Transaction Fees

Transaction fees are like a tiny leak in a piggy bank, slowly draining your cash. If you’re not careful, these fees can quietly eat into your profits like pesky bugs! So, how do transaction fees work for odd-lot trading in Taiwan’s stock market?

Well, it’s pretty much the same as for regular lot trading! You still have to pay a 0.1425% transaction fee and a 0.3% securities transaction tax. But because odd-lot trades usually involve smaller amounts, most brokerages set a minimum transaction fee of NT$20 per trade.

Here’s an easy formula to remember:

For buying odd-lots Transaction fee = Max (Purchase Price × Number of Shares × 0.1425%, 20)
For selling odd-lots Transaction fee = Max (Selling Price × Number of Shares × 0.1425%, 20) + (Selling Price × Number of Shares × 0.3%)

Since 20 ÷ 0.1425% = 14,035.09, if your transaction is less than NT$14,036, you’ll be charged the minimum fee of NT$20. If you often invest around NT$5,000 or NT$10,000 and are worried about fees, it might be worth finding a brokerage that offers lower fees for regular investments.

The Advantages and Disadvantages of Odd Lot Trading

Advantages

Investors can invest in high-priced stocks with less capital.
It is easy to diversify investment risk.
High liquidity.

Disadvantages

Since the amount is often lower, the proportion of transaction fees may be higher.
Margin trading (including financing and short selling) is not available.
Odd lot Trading does not allow day trading; you have to wait until the “first” trading day after the transaction is completed to sell the stocks.

Impact of Allowing Odd Lot Trading During Market Hours on the Investment Market

In the early days, odd lot trading was only available after market hours. However, on October 26, 2020, the securities market introduced odd-lot trading during market hours, which was a significant event that revitalized the investment market! This not only lowered the investment threshold but also made the market more active and flexible. It reduced trade matching times and made market information disclosure more immediate, allowing everyone to seize investment opportunities more quickly and accurately. TEJ has summarized the impact of introducing odd-lot trading during market hours into three key points:

To make it easier for young investors and those with limited funds to invest in Taiwan stocks, and to make the odd-lot trading market more active, the securities market implemented the odd-lot trading system during market hours starting from October 26, 2020, while still retaining after-hours odd-lot trading. This has significantly contributed to the diverse development of the securities market !
According to statistics, as of June 30, 2024, the average daily trading volume of odd-lots reached NT$6.357 billion, accounting for 1.18% of the total market trading volume! This is a significant increase compared to the period before the introduction of odd-lot trading during market hours (from January to September 2020), when the average daily trading volume of odd-lots was only 0.12% of the total market. Among these, the average daily trading volume of odd-lots in the centralized market reached NT$5.340 billion, accounting for 1.25% of the trading volume of listed stocks; while in the over-the-counter market, the average daily trading volume was NT$1.017 billion, accounting for 0.92% of the trading volume of OTC stocks.
To improve trading opportunities and efficiency in the odd-lot trading market during market hours, the securities market shortened the trading interval for odd-lots from three minutes to one minute on December 19, 2022. This aims to enhance the liquidity of the odd-lot market and optimize it further. Additionally, to enhance the immediacy of market information, starting from November 27, 2023, the frequency of disclosing odd-lot market information will be reduced from every 10 seconds to every 5 seconds. This will include information on simulated transaction prices, transaction volumes, and the best 5 levels of bid and ask prices and quantities. This will allow investors to grasp market dynamics more quickly and accurately !

Curious about how to use Block Trades to build portfolio ? I want to know !

Do you find yourself unsure where to start when looking for detailed information on odd lot trading? Don’t worry — TEJ has got you covered! Just log in to TEJ PRO and select “Listed (OTC) Odd Lot Trading Data (Daily)” in the stock price database, and you’ll easily access all the relevant information. The data is updated before 10 PM every night and includes a period condition search function, making it even easier for you to filter the trading information you need!

Conclusion

In summary, odd lot trading offers great convenience and flexibility, especially for investors with limited funds who want to participate in the stock market. This new trading method has introduced regular investment options, such as fixed amounts and variable amounts, allowing investors to purchase a set number of shares with smaller amounts of capital. It lowers the barrier to entry in the stock market and helps in diversifying investment risks more flexibly.

This trading method differs somewhat from traditional whole-share trading, such as restrictions on margin trading and different execution times. There is also room for improvement in information disclosure, which helps reduce information asymmetry over time.

Overall, odd lot trading provides significant advantages in both capital efficiency and risk management for investors.

Do you want to get hold of high-quality financial data quickly?