What is an ‘Odd Lot’
An odd lot is an order amount for a security that is less than the normal unit of trading for that particular asset. Odd lots are considered to be anything less than the standard 100 shares for stocks. Trading commissions for odd lots are generally higher on a percentage basis than those for standard lots, since most brokerage firms have a fixed minimum commission level for undertaking such transactions.
Explaining ‘Odd Lot’
Odd lots may inadvertently arise in an investor’s portfolio through reverse splits or dividend reinvestment plans. For example, a one-for-eight reverse split of a security, of which the investor holds 200 shares, will result in a post-split amount of 25 shares. While trading commissions for odd lots may still be higher than for standard lots on a percentage basis, the popularity of online trading platforms and the consequent plunge in brokerage commissions means that it is no longer as difficult or expensive for investors to dispose of odd lots as it used to be in the past.
Odd Lots, Round Lots and Mixed Lots
While odd lots can include any number of shares between one and 100, a round lot is any lot of shares that can be evenly divided by 100. For example, 75 shares would be an odd lot since it is below 100 shares, while 300 shares would be a round lot since it can be evenly divided by 100.
Issuing Company Actions on Odd Lots
Since an odd lot is considered fairly insignificant to larger institutions, a company may choose to eliminate any odd holdings from the marketplace. This can include buying out the associated shareholder at a premium, offering additional shares to the shareholder to create a round lot, or engaging in a reverse split designed to result in the odd lot becoming equivalent to less than one share to pay the investor cash for a residual holding.
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