No matter whether you are new or old in the stock market scene here in the Philippines – you might have read or heard about the “8k rule”. Usually given as advice around forums or social media on how much your minimum investment should be in the stock market.
A little confusing especially if you are new but what does 8k rule really mean in the Philippine Stock Market?
Let us give you an insight into why this rule is practiced and how you can apply this in your investing or trading journey.
How does the 8k Rule Work?
This is about fees.
To further explain, this is to maximize fees and charges when buying or selling stocks through your stock brokers. See the image below of the breakdown of all the fees and charges in every transaction whenever you buy or sell a stock:
Most of the fees here are constant, it doesn’t change. But there’s an 8k rule solely because of the Broker’s Commision which is 0.25% or 20 pesos, whichever is higher. 0.25% of 8000 is 20 pesos so any transaction below 8000 doesn’t maximize the fees thus lowering your potential profits.
Let’s put this in a scenario:
Scenario 1: Investor or Trader A buys stocks monthly with a value of 4000, in two months his total commission fee would be 40 pesos. That’s 0.5% of a broker’s commission fees.
Scenario 2: Investor or Trader B saves 4000 a month but chose to wait until he/she has 8000 before doing any transaction. His first transaction in two months would charge him 0.25% or 20 pesos maximizing commission fees by the broker.
Yes, it’s not much but 8k rule ensures that traders or investors pay only necessary fees when investing in stocks to earn in the Philippine Stock Market.
Benefits of Following the 8k Rule
The 8k rule in the Philippine stock market is a guideline that encourages traders to invest or transact at least PHP 8,000 per stock to avoid paying unnecessary commissions. This rule has numerous benefits for those who adhere to it and can help traders make more money from their investments.
Better Control Over Risk Management
The 8k rule also allows traders to control their risk management better. By investing at least PHP 8,000 per stock, traders can spread the risk more evenly so as not to be overly exposed to any one stock or market trend. This reduces the risk of significant losses due to market volatility.
Increased Returns on Investment
Following the 8k rule also helps traders maximize their returns on investment. Investing in stocks with larger trade amounts also means that traders can access deeper levels of market analysis and gain insights into the fundamentals of a company’s performance which can help inform better investment decisions.
Final Thoughts — What is 8k Rule in Stock Market?
The 8K rule is a guideline that traders in the Philippine Stock Market should consider following to optimize fees and make the most of their investments.
Although it has its benefits, there are drawbacks, such as needing larger amounts of capital available which could lead to missed opportunities or potential losses due to market conditions changing suddenly.
Ultimately, it’s up to individual traders to assess their circumstances and decide if following this guideline suits them.
FAQs — What is 8k Rule in Stock Market?
Is it mandatory for all investors in the Philippine Stock Market to follow the 8K Rule?
No, all traders in the Philippine Stock Market don’t need to follow the 8K rule, but it’s recommended as a guideline for optimizing fees and maximizing returns from investments in PSE stocks.
Is there any other way I can optimize my fees without following the 8K Rule?
You can optimize your fees without following the 8K rule by researching different online brokers and comparing their commission rates before making any investment decisions.
When choosing an online broker, you should also consider other factors, such as customer service and trading platforms, as these could also affect your overall investment experience and results over time.
Are there any risks associated with following the 8K Rule?
Although following the 8K rule may seem like a smart investment strategy, inherent risks are involved. Adhering to this guideline can result in missed opportunities due to limited capital, and even if executed flawlessly, losses are still possible due to unforeseeable market fluctuations.