An odd lot is an order amount for a security that is less than the normal unit of trading for that particular asset. Typically, for stocks, an odd lot is any quantity less than the standard 100 shares. The trading commissions for odd lots are generally higher on a percentage basis compared to standard lots, owing to a fixed minimum commission level imposed by most brokerage firms for these transactions.
Understanding Odd Lots
Odd lots may unintentionally appear in an investor’s portfolio due to reverse splits or dividend reinvestment plans. For instance, a one-for-eight reverse split on a stock an investor holds 200 shares of will transform it into 25 shares post-split. Although commissions for odd lots might remain higher than those for standard lots, the surge in online trading platforms has drastically reduced brokerage fees, making it easier and less costly to handle odd lots today.
Key Takeaways
- Odd Lot: Refers to an order amount for a security that falls below the typical trading unit (usually 100 shares).
- Round Lot Contrast: Opposes round lots, which are orders divisible evenly by 100 shares.
- Formation of Odd Lots: Often result from activities like reverse stock splits or participation in dividend reinvestment plans.
- Higher Costs: Trading odd lots generally involves higher commission rates and slower execution times.
- Company Actions: Larger firms might opt to eliminate odd lots via buybacks at a premium or through share adjustments to form round lots.
Odd Lots, Round Lots, and Mixed Lots
Odd lots encompass any number of shares between one and 99, whereas a round lot is any share quantity divisible by 100. For example, 75 shares qualify as an odd lot, while 300 shares are considered a round lot. Round lots are commonly posted on exchanges, while odd lots typically are not included in bid/ask data, and their trades do not appear on several data reporting platforms. This unique nature often results in longer periods to complete odd-lot transactions.
Mixed lots encapsulate quantities above 100 shares but cannot be divided evenly by 100. For instance, 147 or 2,999 shares are mixed lots. Reporting for mixed lots tends to prominently display the portion constituting a round lot — 147 shares would report as 100 and 2,999 as 2,900.
How Companies Address Odd Lots
Due to their insignificance to major institutions, companies frequently look to remove odd lot holdings from the market. This can involve buying out shareholders at a premium, offering additional shares to create a round lot, or conducting reverse splits to convert an odd lot to less than one share, subsequently paying the investor cash for the residual holding.
Related Terms: round lot, reverse stock split, dividend reinvestment plan, mixed lot, trading commission.
References
- Schmitt Trading Ltd. “Trading Lots”.
- Nasdaq. “5000. Nasdaq Listing Rules”.
- Interactive Brokers. “What Is an ‘Odd Lot’ in Stocks?”
