An odd lot refers to an order amount for security that is lower than the usual unit of trading for that asset. An odd lot is anything that is less than 100 shares of stock. Because most brokerage firms have a minimum commission level, trading commissions for odd lots tend to be higher than for standard lots.
Understanding Odd Lots
An investor may accidentally have odd lots through reverse splitting or dividend-reinvestment plans. A one-for-8 reverse split of a security will result in 25 shares after the split. Although trading commissions for odd lots are still higher than for standard lots percentage-wise, investors can now dispose of odds lots much easier and cheaper thanks to online trading platforms.
Mixed Lots, Round Lots and Odd Lots
Odd lots can contain any number of shares from one to 100. However, a round lot is any amount of shares that can evenly be divided by 100. A round lot would include 300 shares that can be equally divided by 100. 75 shares would, for example, be considered an odds lot because it contains less than 100 shares.
Round lots can be posted to the exchange. However, odds lots cannot be posted in the bid/ask data. Odd-lot trades are not reported by various data reporting sources. Odd-lot trades take more time due to the small number of shares involved.
Mixed lots are lots that have more than 100 shares. However, this cannot be divided equally by 100. Mixed lots would include, for example, 2,999 and 147. Mixed lots reporting, which includes bid/ask data and other data, typically only shows the part that makes up a round lot. If you use the above mixed-lot sizes, for example, the 100 shares would be reported as 100, and the 2,999 shares as 2,900.
Issue Company Actions on Odd Lots
An odds lot is considered to be quite insignificant by larger institutions so a company might decide to remove any odds holdings from he marketplace. You can do this by buying the shareholder out at a premium or offering more shares to the shareholder in order to create a round lots. Or, you may engage in a reverse split to make the odds lot equal to less than one share in order to pay the investor cash for a residual hold.