Accurate math

Posted Oct 20, 2009 21:19 UTC (Tue) by nevets (subscriber, #11875)
In reply to: Accurate math by man_ls
Parent article: Red Hat share price passes Microsoft's (The Inquirer)

In the New York Stock Exchange usually a unit of trading is 100 shares of stock. Some firms will buy a bunch and sell them off individually, but they usually charge an extra fee if you don't buy in 100 unit quantities. I think this is not as bad in the world of internet trading, where the companies can always find a buyer for those broken units.

My current broker only offers in 100 share units and charges a very small commission.

Accurate math

Posted Oct 21, 2009 8:57 UTC (Wed) by epa (subscriber, #39769) [Link] (1 responses)

In the New York Stock Exchange usually a unit of trading is 100 shares of stock.

A foolish rule IMHO. It just gives an incentive to companies to issue a large number of shares with a low share price, so that trading them will be easy. That, in time, might prompt the NYSE to increase the trading unit to 1000 shares, and so it goes on.

Accurate math

Posted Oct 21, 2009 10:25 UTC (Wed) by tialaramex (subscriber, #21167) [Link]

The exchange probably has a minimum price rule. Setting the IPO per-share price too low risks being disqualified from the exchange for not obeying the rule during a subsequent dip in confidence, forcing the company to spend money on a reverse-split when it can least afford to do so.

The size of a normal trade is important because the market maker isn't obliged to complete an order that's undersize. Ordinarily, with a properly sized order, the market maker's quotes are something you can rely on, even if no-one else happens to be buying at the moment you want to sell, the market maker will be as good as their word on the bid price and take the stock off your hands. But if you're undersize, there's no obligation to do that.

Now on a heavily traded stock like RHAT or MSFT that's irrelevant. Someone is going to clean up your oddly sized offer and in the worst case you might lose a cent per share on the deal for your refusal to work in round numbers. But on more thinly traded stock its the difference between a trade now and leaving your order on the books for minutes, hours, even days until another trader wants the other side. Liquidity costs money.

Take BEOS. At or soon after IPO it was bought by lots of fairly ordinary people with little or no knowledge of trading but who loved Be's product and believed they'd do well. The company's figures, gloomy even at IPO if you bothered to look, got no better, and belts were tightened as the economy struggled. Institutional owners got out quickly, and BEOS was delisted from NASDAQ. Many of those ordinary people expected to go online, click a button and sell up their BEOS, but they had only a handful of stock and with the big investors gone there was no-one to buy from them. Lack of liquidity cost them what little was left of their investment.