Stock prices in the capital market vary widely. The lowest share price in the regular market is IDR 50 per share (subject to change depending on the policy of the Indonesia Stock Exchange). And the highest stock price is unlimited. The high and low stock prices greatly affect the capital you trade in the stock market. The higher the stock price, the more capital you need and vice versa.
Well, when you talk about stock prices, stock prices cannot be separated from what is called a price fraction. The price fraction is the price limit and multiples of the stock price that are regulated in stock trading on the stock market. The current price fraction rules (subject to change at any time depending on the policy of the Indonesia Stock Exchange) are as follows.
As of May 2, 2016, the Indonesia Stock Exchange has revised the price fraction to 5 fractions instead of 3 fractions. Please read more in my post: New Price Fractions and Its Impact on the Capital Market.
In the stock market, of course, when the market is open, you can see the share price fraction in the offer queue and bid for certain shares. I give an example of GGRM (left), PWON (right) and WSKT (bottom) stock queue systems. GGRM's share price reaches Rp. 60,000 per share, therefore its price fraction is Rp. 25. Since PWON's share price is below 500, the price fraction is Rp1. While WKST costs around Rp. 1,700, so the fraction of the price is Rp. 5.
The picture above shows the stock queue system in the capital market. That's where you can see the price fraction. Each system always shows the price fraction. For example, PWON stock. Look at the Bid Price, there are 457, 458, 459, 460, 461 prices. The increase from 457 to 458 is called a price fraction. As the table above shows, the higher the stock price, the higher the price fraction.
The question is: Which one can you make a profit faster if you buy shares with a small price fraction or a large price fraction? To answer this question, let's look at the illustration below.
PRICE FRACTION ILLUSTRATION
Suppose you buy PWON shares at a price of IDR 450 for 100 lots. In addition to buying PWON shares, you also buy GGRM shares at a price of IDR 60,200 for 1 lot and buy WSKT shares at a price of IDR 1,785 for 26 lots. See the table below (click to enlarge).
Illustration of table 1
Illustration of table 2
It turns out that a small increase in the price fraction and a large price fraction provide different potentials for the size of the cash. When you buy PWON at 450 and sell at 451, you can't earn. This is because you have to bear the buying fee and selling fee of the securities (in this example I take the purchase fee of 0.17% and the selling fee of 0.27%).
Likewise when you buy GGRM shares. When you sell GGRM at 60,225 (buy at 60,200) you can't pay. When you buy WSKT at 1,785 and sell at 1,790 you also can't pay.
You can only earn money (taking into account the buying fee and selling fee), when you:
1. Selling PWON shares at a price of 453 (up by 2 fractions). With a capital of IDR 4,517,769 and an increase of 2 price fractions, you can generate cash of IDR 10,119.
2. Sell GGRM at 60,500 (up 11 factions). If you buy GGRM, with a larger capital, which is IDR 6,033,665, you need to increase 11 new fractions you can save. The cash you get is still smaller, which is IDR 3,431.
3. Selling WSKT at 1,795 (up by 2 factions). If you buy WSKT which costs 5 fractions, with a capital of Rp.4,654,399 you both need an increase of only 2 fractions to be able to pay the same amount as PWON. However, the money you get is still smaller than PWON, which is IDR 5,509.
"So dude Heze, what does all this mean?" You Ask
This means that it is the small price fraction that has the potential to generate faster and more cash than the large price fraction. The order is: the fastest Rp1 price fraction, followed by the Rp5 price fraction then the Rp25 price fraction. The smaller the share price fraction, the potential for a small increase in the fraction to generate cash faster. The more lots you have, the bigger the profit automatically when you sell the stock at a price higher than the purchase price.
How, have you understood until here?
^_^ ^_^ ^_^ ^_^
So, even though the IDX eventually changed its price fraction policy, I think it is the smallest price fraction that will provide a faster return than the large price fraction. This reason is one of the reasons why traders like small stock prices, below Rp. 1,000 per share or even below Rp. 500 per share, whose price fraction is still Rp. 1. There are a lot of fried stocks that cost under Rp500 and are proven to be in demand by the city.
"Then, if trading is good, which one do I choose? Which is better between small and large price fractions?"
It all depends on the funds you have. Of course, a small fund of only Rp. 5,000,000 cannot be used to buy, even for 1 lot of GGRM shares whose price per share reaches Rp. 60,000. It still has not been charged a purchase transaction fee. If you only have IDR 2,000,000 for trading, then buy stocks with low prices.
But there is one more important thing that you must understand: Low price fraction stock prices do not mean they are all good for trading because they are faster. There are other factors. What is that?
The answer is: RISK FACTORS. You should be wary of low stock prices, because many low stock prices are illiquid, volatile, and often fried. If you want to buy shares with a small price fraction, choose liquid stocks and stocks that are familiar to you.
