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What is an odd-lot order?


Odd-lot is a term used in the investing world.Round lot refers to buying and selling in multiples of 100 shares.Odd lot refers to buying and selling other than round lots.Round lots used to be the rule when dealing on the stock market, but there are few advantages left in dealing with round lots.

Possible limitations on odd lots (i.e., lots that are not multiples of 100) are the following:


  • The broker might add 1/8 of a point to the price -- but usually the broker will either not do this, or will not do it when you place your order before the market opens or after it closes.
  • - Some limit orders might not be accepted for odd lots.
  • - If these shares cover short calls, you usually need a round lot.
  • - If you want to write covered calls, you'll need a round lot.

If none of these situations apply to your investments, then you need not worry about round or odd lots.There's just nothing magic about selling 100 shares or 59 shares or any other number.
Don't be concerned that your order to buy or sell 59 shares won't be considered until all 100-share or round lot orders are run. Your order doesn't just sit waiting for an exact match. Your order will likely just be swept into the specialist/brokers trading account along with all the other stock trades.

If you're buying a very small number of stocks priced under $100 or so, your biggest problem is to find a broker who will bother with the order and give reasonable commission. The discounters may not touch the small order or charge more - and a lot of bigger firms have minimum commissions of $35 - 75 or so. Many firms want a minimum size account to open one, too.

So why does an investor still hear so much about odd lots? Well, once upon a time, there was a difference. At that time, if you wanted to sell 100 shares, your order would be forwarded to an NYSE floor broker, who would then trek over to the trading area for that particular stock and try to find a buyer. If you wanted to sell only 50 shares, the floor broker would instead hoof it over to an odd lot broker. If you were in a hurry and specified "no print," the odd lot broker would buy the 50 shares at one eighth of a point below the posted bid price for the stock. Otherwise, the trade would go through at one eighth off the next trade (one quarter point if over $40/share). But all this is ancient history.

The "odd lot differential" of one eighth or one quarter of a point was one of the ways that the odd lot broker made money. But these days, there are no odd lot brokers--and hence no odd lot differentials. Small stock trades, whether for 50 shares or 100 shares, are handled by computer rather than by people

The only thing that's left of the odd lot broker system is a reluctance by many people to place orders for less than 100 shares. At one time, these orders were subject to the odd lot differential, so people learned to avoid them whenever possible. The notion that orders of less than 100 shares were bad entered the investment world's folk lore, and like many other sorts of folk wisdom, it has a remarkable ability to persist even though it is no longer justified by the facts.

In summary, an odd lot refers to stocks not in multiples of 100s or less than 100.However, in most situations you do not need to be concerned whether you are trading in round or odd lots.

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