Work out the smallest order you can place and what it will cost with fees.
Nadia has S$5,000 ready and has chosen Fund X. She opens the order screen, types 5,000 in the quantity box, and the app refuses it.
It takes her a minute to realise the box wants units, not dollars, and another minute to find out that units come in fixed bundles. Many broker order screens ask for a quantity in units rather than a dollar amount, and on SGX you cannot buy any number of units you like in the normal market. Before your first order, work out three things: the smallest amount you can buy, what it costs including fees, and how big an order must be before fees stop taking a large share.
Shares and ETFs on SGX trade in board lots, a fixed number of units per lot. In the normal market you buy and sell only in whole lots: one lot, two lots, ten lots and so on. Lot size can differ between securities, so check the lot size for your exact fund on its SGX page or in your broker's order screen. Don't assume one fund's lot size matches another fund's.
Fund X has a price of S$3.50 a unit and a board lot of 100 units (both example figures). One lot costs S$3.50 x 100 = S$350, which is the smallest amount Nadia can buy in the normal market.
Anything less than one board lot is an odd lot. Odd lots trade in a separate part of the market that SGX runs for that purpose. You can buy and sell there, but fewer people trade in it, so prices can be less favourable and spreads wider. For a first purchase, stick to whole board lots in the normal market.
Some custodian brokers and regular savings plans let you buy fractions of a unit or an exact dollar amount, because they pool many customers' orders. This only works when the broker holds the units for you. In a CDP-linked account you buy whole lots.
The made-up broker from Lesson 1.4, Compare two brokers on one sheet, charges 0.12% commission with a minimum of S$10. A minimum commission is the lowest fee a broker charges per order, and it does not shrink as your order shrinks, which is why it matters so much on small orders. When the percentage commission works out lower than the minimum, you pay the minimum.
If Nadia bought one lot, she would pay S$350 + S$10 = S$360 in total, before exchange and clearing fees. The commission alone is about 2.9% of the order, so a 2.9% rise in the fund's price the day after buying would only just bring her back to even.
Four lots cost S$1,400, roughly what three months of her saving would buy, and the S$10 fee is about 0.7% of that. Fourteen lots cost S$4,900, which is what her S$5,000 covers, and the fee is about 0.2%. The broker and the fee are the same in all three cases. With a fixed minimum, the fee as a percentage falls as the order grows.
With this broker, the percentage commission passes the S$10 minimum at about S$8,333. Above that point the fee is a steady 0.12% however large the order gets. Order size sets your cost as much as the choice of broker does.
There is no single right order size. As a rule of thumb, if fees take more than about 1% of an order, it is usually worth waiting and buying a larger amount less often. Nadia made that trade in Lesson 1.4, when she decided to buy every three months and accept fewer purchases in return for a lower fee percentage.
Prices change through the day, and last night's price may not be today's. Do the calculation with the current ask price; Lesson 4.2, How an ETF price is set on the exchange, showed how to find it. Run through these steps before every order:
Start with today's price, using the current ask price. Multiply by the board lot size to get the cost of one lot. Decide how many whole lots your money covers. Multiply the lot cost by the number of lots to get the order value. Add the broker's commission, using the minimum if the percentage comes out lower. Roughly allow for exchange and clearing fees. Divide the fees by the order value to see them as a percentage. If the price has moved so your money covers one lot fewer, plan for that before you open the order screen.
At S$350 a lot, Nadia's S$5,000 covers fourteen lots, an order value of S$4,900, with S$100 left over. Commission at 0.12% of S$4,900 is about S$5.88, which is under the minimum, so she is charged S$10. That is about 0.2% of the order, well below the 1% guideline, and she adds a small allowance for exchange and clearing fees on top.
The S$100 left over, less fees, stays in her bank account and goes towards her next purchase. Leftover cash is normal, because money rarely divides exactly into whole lots. Don't round up to the next lot unless you have the money for it.
Now do the same for your own order. Find your chosen ETF's board lot size and its current price. Then work out what one lot would cost with your broker's fees, and what those fees come to as a percentage of the order.
Take today's price for your chosen ETF. Work out what one board lot costs with fees, and what percentage of the order the fees come to.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).