What is an odd lot?
An odd lot is an order amount for a security that is less than the normal trading unit for that asset. Odd lots are considered slightly less than the standard 100 shares for stock. Trading commissions for odd lots are generally higher on a percentage basis than for standard lots, as most brokerage firms have a set minimum commission level for executing such trades.
Understanding odd lots
Odd lots can unintentionally appear in an investor's portfolioreverse distributionofdividend reinvestment plans. For example, a one-for-eight reverse split of a security in which the investor owns 200 shares will result in a post-split amount of 25 shares. While trading commissions for odd lots can still be higher than forstandard lotsOn a percentage basis, the popularity of online trading platforms and the resulting decline in brokerage means that it is no longer as difficult or expensive for investors to own odd lots as it used to be.
Key learning points
- An odd lot refers to an order amount for a security that is less than the normal trading unit for an asset, which is typically 100 shares for equities.
- Odd lots contrast with round lots, which are order amounts for a security that are divisible by 100.
- Odd lots usually appear in a portfolio as a result of a company announcing a reverse stock split, due to dividend reinvestment plans.
- An odd order usually costs more due to higher commission levels and takes longer to complete than other orders.
- Large corporations view extraneous holdings as fairly insignificant and may choose to eliminate such holdings by buying out the shareholder at a premium or offering the shareholder more shares to create a lottery.
Odd plots, round plots and mixed plots
Although odd lots can contain any number of shares between one and one hundred, around partyis each lot of shares that is divisible by 100.For example, 75 shares would be an odd lot because it is fewer than 100 shares, while 300 shares would be counted as a round lot because it is evenly divisible by 100.
While round lots are posted on the corresponding exchange, odd lots are not posted as part of the bid/ask data. Furthermore, the execution of odd-lot transactions does not appear in several data reporting sources. Due to the unusual number of shares involved in the trade, odd-lot trades often take longer than those involving round lots.
Mixed batchesincludes lots with more than 100 shares, but is not divisible by 100. For example, 147 or 2,999 would both be mixed lots. When reporting mixed lots, including bid/ask data, typically only the portion that makes up a round lot is shown. For example, the 147 shares would be reported as 100 and the 2,999 shares would be reported as 2,900 based on the mixed lot sizes mentioned earlier.
Issuance of corporate deeds on unequal lots
Because an odd lot is considered fairly insignificant for larger institutions, a company may choose to remove odd holdings from the market. This can be done, among other thingsbuyout of the associated shareholderat a premium, offering additional shares to the shareholder to create a round lot or performing a reverse split that results in the odd lot equaling less than one share to pay the investor cash for a remaining participation.
