What is a Board Lot?

A board lot is a standardized number of shares defined by a stock exchange as a trading unit. In most cases, this means 100 shares. At some trading venues, the board lot equals more than 100 shares. For example, the board lot size at the Hong Kong Exchanges and Clearing Limited was changed from 8,000 shares to 24,000 shares in Feb. 2019.

Key Takeaways

  • A board lot is a standardized number of shares defined by a stock exchange as a trading unit.
  • The idea behind board lots is to facilitate easier trading by defining blocks of shares for trading, instead of having a random assortment of numbers being traded.
  • Board lots lead to tighter spreads and more liquidity.

The purpose of a board lot is to avoid "odd lots" and to facilitate easier trading. It's more difficult for a broker to find a buyer for, say, 17 shares, than if everybody agrees to trade in 100 share lots.

Understanding Board Lots

For example, a stock exchange might define one board lot as equaling 1,000 shares for stock priced under $1, and 100 shares for shares of more than $1. 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.

For certain hedging applications or other more advanced trading strategies, buying or selling in increments of 100 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 online or discount brokerages to limit users to round lots as part of their service agreements.

Example of Board Lots

Unlike the U.S., where board lot sizes are standardized to 100 shares, the Toronto Stock Exchange (TSX) has variable board lot sizes that are dependent on the price of the security. They are defined in the Universal Market Integrity Rules (UMIR) that govern trading practices in Canada. The guidelines are as follows: trading price per unit is less than $0.10—board lot size is 1,000 units. Trading price per unit is $0.10 to $0.99—board lot size is 500 units. Trading price per unit is $1.00 or more—board lot size is 100 units.