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Wednesday, 14 January 2015

What does 1 lot of 100 units means to Retailer?

This post is related to the article posted below. http://www.straitstimes.com/news/business/markets/story/sgx-prepares-market-smaller-lot-size-20150113 Taking UOB EOD on 14/01/2014. If we look at market depth now.

When 1 lot is 1000 unit, buyQ 10 lot at 23.23 sellQ 31 lot at 23.34

When 100 unit kicks in, it should be

buyQ 100 lot at 23.23 sellQ 310 lot at 23.34

The buy up at $23.33 for 1 lot wll be 100unit * $23.33 = $2333 + $0.9332 (0.04%) + min amt $20 = $2353.93 but you only get $2333 in your CDP account.

You will need UOB to be selling at $23.76 to merely break even with positive $1.11 less expenses from total cost of  $2353.93 .
Look at the market depth again, I have to add in 23.55 myself for illustration and 23.54 will have 70lot waiting to be clear to even see 23.76 The above calculation means, for retailer who buy in small lot TO TRADE, it will take quite a distance to see profit. Is it really feasible for trading? You have the answer to yourself.
How about people who are doing long term investing? In this case, we will need a different mindset. You will want your money to work for you by compounding the dividend back into your investment. Your main concern will not be how long and at what price to break even. BUT buying at an EXPENSIVE PRICE would be a mistake mainly because what you compounded might not exceed your loss. So when it comes to investing, Always Buy at a Bargain. To make the illustration simple, Let's said UOB give a consistent dividend yield of 2.964% and the investor have decided to let the money grow for 10 years with $2333 worth of units in the CDP account.
To be honest, 2% cannot fight inflation so please don't buy UOB because of an example I shown.   I choose UOB because it was discussed in a FaceBook post.

After 10 years, the investor will get an ESTIMATED return of 34% return less expenses from the above illustration. This illustration return does not include any capital appreciation (if any).
This  illustration is consider a profit ONLY if at the time you decided to cash out, there is no losses in your position.
At the end of this article, you will understand the smaller lot size is usually not suitable for people to trade but more for people who have a long term investment plan. Invest Safely Everyone! Another Good Deed Done.


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