A Complete Guide to Odd Lot Trading: How to Play the Stock Market with Small Capital?

For retail investors with limited financial strength, the traditional full-share trading threshold of several thousand yuan can indeed be daunting. In recent years, odd-lot trading has gradually become the gateway for small investors to enter the stock market. What exactly is odd-lot trading? What are the trading rules? How can you make buying and selling smoother? This article will help you understand everything.

What is odd-lot trading? Why does it exist?

In the stock market, the minimum trading unit of a full share is one lot, representing 1,000 shares. However, investors sometimes end up with fractional shares less than 1,000 due to unfilled orders or during dividend and allotment processes, which are called odd lots. The minimum trading unit for odd-lot is 1 share, and the order size cannot exceed 999 shares.

Simply put, odd-lot trading is fractional stock trading, mainly to meet the needs of small-scale investors. Compared to buying a full lot of stock directly, odd-lot trading allows investors with limited funds to participate in their preferred companies’ investments.

When does odd-lot trading occur? Are there any restrictions?

Starting October 26, 2020, the Taiwan Stock Exchange opened intraday odd-lot trading, greatly improving the previous situation where trading was only possible after hours. Now, odd-lot trading is divided into two sessions:

Intraday Trading Session (9:00-13:30)

• Orders can only be placed electronically (via broker apps or trading platforms)
• The first call auction occurs at 9:10, followed by continuous matching every minute
• Follows price priority, and in case of the same price, time priority
• Unfilled orders are not automatically carried over to after-hours trading

After-hours Trading Session (13:40-14:30)

• Orders can be placed via electronic, phone, or manual methods
• A single call auction occurs at 14:30
• The matching principle is price priority; if prices are the same, orders are randomly ordered
• Unfilled orders are automatically canceled and are not carried over to the next day

For retail investors, the intraday trading period overlaps with full-share trading hours, providing more trading opportunities. However, if orders are unfilled during the day or partially filled, investors need to re-enter orders after hours or the next day.

Are there any special regulations for odd-lot trading?

Dividends and shareholder benefits

Odd-lot holders are still shareholders and thus entitled to dividends. During dividend distribution, fractional shares less than one share can be converted into cash dividends or sold collectively by the company, with proceeds distributed accordingly.

Trading units and purchase thresholds

The minimum trading unit for odd-lot is 1 share, so theoretically, an investment of NT$1,000 can participate in odd-lot trading. However, considering transaction fees, it is more cost-effective to trade amounts of NT$10,000 or more per transaction.

Buying and selling restrictions

Odd-lot shares can be freely bought and sold, and the Taiwan Stock Exchange explicitly recognizes the legality of odd-lot trading. As investment needs diversify, odd-lot trading has become a common approach for small investors.

How high are the costs of odd-lot trading?

Commission calculation

The commission for odd-lot and full-lot trading is the same, both at 0.1425% of the transaction amount. For example, purchasing 200 shares of TSMC (assuming a closing price of NT$1,065):

200 shares × NT$1,065 × 0.1425% = NT$303.53

Different brokers set minimum commissions (usually NT$1 or more) and offer discounts for electronic orders. With a 50% discount, the actual commission would be NT$151.77.

Comparison of main brokers’ fee discounts

Most well-known brokers like Fubon, E.SUN, and Shin Kong set the minimum commission for odd-lot trades at NT$1, but the discount rates for electronic orders vary widely, from 18% to 60%. It is advisable to compare different brokers’ promotional policies before opening an account.

How to ensure smooth execution of odd-lot trades?

Although the trading system is increasingly convenient, the trading volume for less popular stocks remains relatively low, and investors may not be able to complete transactions on the same day. The following tips can improve the chances of successful trades:

Convert odd-lots into full lots

If an odd-lot order remains unfilled for a long time, consider adding funds to buy more odd shares until reaching a full lot (1,000 shares), then sell the full lot in the more liquid full-share market. For example, if holding 700 shares of a less liquid stock, buy an additional 300 shares to make a full lot, then trade in the full-share market.

Extreme price strategies

During after-hours trading, since only one call auction occurs, investors eager to execute trades can try to buy at the limit-up price or sell at the limit-down price. According to the maximum transaction principle, this can significantly increase the likelihood of execution.

Advantages and disadvantages of odd-lot trading

Main advantages

The primary advantage of odd-lot trading is the low capital requirement. Compared to full-share trading that often costs thousands of yuan per transaction, odd-lot trading allows small investors to participate with less initial capital, preserving liquidity for daily expenses and enabling diversified portfolios. Additionally, odd-lot trading can serve as a “test water” tool, helping beginners familiarize themselves with the stock market with lower risk.

Main disadvantages

Lack of liquidity: For less popular stocks, odd-lot trading volume is sparse, and matching can take a long time.

Higher hidden costs: Besides basic commissions, some brokers charge additional service fees. For small investments, these fees can constitute a significant proportion, eroding profits.

Trading restrictions: Odd-lots can only be sold, not bought; converting odd-lots into full shares is subject to time restrictions; in some cases, brokers may lack inventory, making it impossible for investors to buy the desired amount.

Other options for small investors

If concerned about high fees and low liquidity in odd-lot trading, investors can explore other small-scale trading methods. For example, CFD(CFD) trading requires only a margin deposit, with lower thresholds and usually no additional commissions, but it is more suitable for short-term trading and daily settlement.

Compared to that, odd-lot trading is more suitable for retail investors who wish to hold stocks long-term, while short-term traders may consider other derivatives.

Conclusion

With the improvement of market systems, odd-lot trading has become the most convenient way for small investors in Taiwan to enter the stock market. Investors can participate without purchasing full shares, flexibly allocating their funds according to their own circumstances. However, successful odd-lot investing requires not only understanding trading rules but also possessing basic risk awareness and investment analysis skills. Only by fully grasping the operation logic of odd-lot trading, assessing one’s risk tolerance, and avoiding blind following can investors steadily progress in the odd-lot market.