What Is Odd Lot Trading? TEJ Guides You Through The Basics From The Ground Up

Preface

Odd lot trading refers to the practice of buying and selling smaller quantities of stock that do not constitute a standard trading unit (commonly 1,000 shares in Taiwan). This mechanism lowers the financial barrier to entry, enabling investors with limited capital to participate in the stock market by purchasing shares incrementally. It provides a pathway for individuals to gradually build their portfolios while offering greater flexibility in diversifying investment risks. Moreover, odd lot trading allows small amounts of capital to be actively invested, enhancing the potential for returns compared to traditional savings. At the same time, it bolsters market liquidity, catering to the broader need for capital flow within the financial system.

The Pros and Cons of Odd Lot?Trading

Pros

• Enables investment in high-priced stocks with a smaller capital outlay.
• Facilitates diversification of investment portfolios, thereby mitigating risk.
• Offers significant liquidity in the market.

Cons

• Due to the smaller transaction amounts, the relative proportion of transaction fees can be higher.
• Margin trading, including financing and short selling, is not supported.
• Day trading is not permitted; investors must wait until the next trading day after the transaction is settled to sell the stocks.

What Can Odd-Lot Trading Reveal About Market Sentiment?

Odd lot trading offers excellent convenience and flexibility, especially for investors with limited funds who want to participate in stock markets. This new trading method has introduced more investment options, such as fixed and variable amounts, allowing investors to purchase a set number of shares with smaller amounts of capital.

Following the improvement of liquidity, the data of odd-lot trades may reflect extra information on the retail investors’ feelings, making it possible to be considered an element of strategy-making.

TEJ enhances strategy backtesting with high-quality market data, including dividend-adjusted stock prices, institutional buy-sell data, margin trading, financial metrics, and broker activity, offering a complete view of market conditions.

Click here to learn how odd-lot trading works in Taiwan and uncover hidden insights from TEJ’s comprehensive market data.