How much is a reasonable amount? Understanding the key to stock trading units

Why is there such a big difference in stock prices for the same stock across different markets?

This is a question many novice investors ask most frequently. TSMC is quoted at 561 New Taiwan Dollars (NTD) on the Taiwan Stock Exchange, but only $95 USD in the US market. Behind this seemingly huge price gap are fundamental differences in trading systems across markets. To unravel this mystery, first understand the definition of “one share” in each market.

What is stock price? What does one share represent?

The stock price refers to the real-time transaction price of one share of stock in the market, which is not fixed but constantly fluctuates based on dynamic matching of buy and sell orders. Different countries use different currency units; US stocks are priced in USD, while Taiwan stocks are priced in TWD.

The face value of a share has no direct relation to its current market price. The face value simply records the initial division of the company’s capital— for example, if a company’s capital is 10 million TWD divided into 1 million shares, each share has a face value of 10 TWD. But now, to see how much one share costs, you only need to look at the current market price.

In the past, Taiwan mandated a face value of 10 TWD per share, leading most listed companies to have a face value of 10 TWD, while overseas stocks vary widely. Investors should focus on the market price, not the face value.

Viewing share price movements through examples

Take Tesla (TSLA) as an example. On January 6, 2023, one share of Tesla was priced at $101.81 USD, and by August 2 of the same year, it had risen to $254.11 USD. In less than 7 months, the cost to buy one share of Tesla more than doubled—this reflects the company’s profitability and investor expectations driving the price.

Similarly, Taiwan Cement (1101.TW) was priced at 32.10 TWD per share on April 30, 2024. That is the amount you would pay to buy one share of Taiwan Cement at that time.

The difference between one share and one lot—unique trading logic in Taiwan

In Taiwan, “one lot” (一張) equals 1000 shares, whereas in the US, the trading unit is simply one share, with no concept of “one lot.” This is the fundamental reason for the apparent price differences between Taiwan and US markets.

Suppose TSMC’s stock price is 561 TWD per share. Buying one lot (1000 shares) costs: 561 × 1000 = 561,000 TWD (about 560,000 TWD)

In contrast, the same stock in the US market can be bought for around $95 USD (about 3,000 TWD) for one share. The difference in trading thresholds is the main reason investors find the price gap surprising.

How retail investors participate in Taiwan stock trading? The difference between whole shares and fractional shares

Because the cost of one lot is high, Taiwan’s market introduced two trading methods to promote liquidity: “whole shares” and “fractional shares.”

Whole share trading involves a minimum unit of 1 lot (1000 shares). Trading hours are 09:00-13:30 during the day and 14:00-14:30 after hours. It uses a continuous matching mode, with quick transactions and high liquidity. However, the capital requirement is high, making it difficult for ordinary retail investors to afford.

Fractional share trading allows buying and selling between 1 and 999 shares. Trading hours are 09:00-13:30 during the day and 13:40-14:30 after hours. It uses a periodic auction system, matching orders once per minute. The capital threshold is lower, but liquidity is poorer, and trading is relatively slower.

Investors should choose based on their capital situation. When possible, opt for whole share trading to ensure better transaction efficiency.

Comparing trading rules between US and Taiwan markets

The cost difference for the same stock across markets stems from the different trading units. The US market’s design based on one share as the basic unit lowers the barrier for retail participation compared to Taiwan’s one-lot system.

Three major factors determining the price of one share

Company fundamentals

A company’s financial health, profitability, and growth prospects are core drivers of stock price. Strong performance attracts investors, pushing prices higher; poor performance can lead to declines.

Macroeconomic environment

Indicators like GDP, interest rates, and inflation influence overall stock market performance and, consequently, individual stock trends.

Market sentiment and risk appetite

Investor optimism or pessimism can quickly change supply and demand for stocks. Negative news, political fluctuations, or global events (like pandemics) can trigger sell-offs, causing sharp declines in stock prices.

Understanding how the price of one share works is crucial for investors to decide which market to trade in and when to enter. Whether you choose Taiwan’s whole or fractional shares, or dive into US stock trading, mastering the basics of trading units is the first step to starting your investment journey.