Ordering in quantities other than 100.
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Big, stodgy Wall Street institutions and big round numbers are so passĂ©. Todayâs markets are increasingly populated by odd ducks. Or, more precisely, odd lots, meaning orders of fewer than 100 sharesâmore accessible to smaller, individual investors.
The term âodd lotâ goes back decades, but has taken on greater prominence in recent years amid growth in day trading and online investing platforms and apps, most of which offer zero-commission trading. Odd-lot trading as a market indicator offers a unique window into how todayâs market actually trades.
Key Points
- Odd lotsâtrades of fewer than 100 sharesâmake up the majority of U.S. equity trades by count.
- Odd lots reflect how modern markets operate, including widespread retail access and algorithmic trading.
- As a sentiment signal, odd-lot activity is less reliable than it once wasâso donât rely on it alone or assume quoted prices reflect the full market.
A brief history of odd-lot trading
The âodd lotâ originated in the early 20th century when stock exchanges established the concept of âround lots,â or standardized trading units of 100 shares. Any buy or sell order that fell below this threshold was classified as an odd lot. Historically, odd-lot trading was associated with smaller investors who lacked the capital to purchase full, round lots. This fostered perceptions that odd-lot traders were less sophisticated or less influential, or, as they were often derisively labeled by market professionals, âdumb money.â
Odd-lot trading was initially handled differently from round lots. Specialized odd-lot brokers facilitated these transactions, often charging higher fees to cover the additional administrative burden. But in recent decades, the growth of the Internet, electronic networks, and commission-free mobile trading apps have made the markets accessible to almost anyone, in any quantity they wish to buy and sell.
From odd lots to fractional shares
Odd-lot trading once gave smaller investors a way to buy into high-priced stocks without committing to a full, 100-share round lot. Today, fractional shares take that a step further, letting you buy a slice of a single share. Together with micro-investing apps, fractional trading has reshaped how individuals access the market, making price less of a barrier.
The math of odd-lot trading is fairly straightforward. Suppose you want to pick up a few shares of a mega-cap tech company trading at $500 or higher. A traditional round lot would require coughing up $50,000 (before factoring in margin, which can increase buying power). By contrast, a 10-share odd lot would be just $5,000.
From the margins to mainstream: Evolution of odd-lot trading
At one time, odd-lot trades were often overlooked by institutional investors and market analysts, considered too insignificant to reflect market trends. But the ascension of the retail investor brought odd lots into the spotlight, which fueled demand for greater transparency and more information on these trades.
Odd-lot trading was essentially a black box until around 2013, when, following a push by market regulators and others in the industry, U.S. equity exchanges started reporting odd lots on the âconsolidated tapeâ (the stream of stock quotes distributed to the public each trading day). More recently, the Securities and Exchange Commission (SEC) directed distributors of real-time stock market data to collect and disseminate certain odd-lot quote information to âcoreâ data.
Why odd-lot trading matters in todayâs markets
Odd-lot trading has grown rapidly over the past decade, to the point where such trades account for well over half of all U.S. equity trades by count (industry estimates range from 54% to 66% in the 2020s, compared to around 4% at the start of the 2010s). Thereâs also some evidence that better-priced odd-lot quotes can exist outside the National Best Bid and Offer (âNBBOâ) for certain stocks using odd lots versus round lots.
The rise of algorithmic trading (which slices orders into smaller chunks) along with the advent of high-priced stocks and greater retail participation have all made odd-lot quotes far more numerous, according to a 2021 report published by the National Bureau of Economic Research. As a result, thereâs now a âmarket inside the marketâ where better quotes routinely exist compared to those disseminated via the NBBO.
Are you an investor or a trader? Or perhaps a bit of both?
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What odd-lot trading says about the market
Odd lots can be used as a source of insight into retail investor sentiment and behavior compared to the big institutions. Some analysts use algorithmsâincluding arbitrage strategiesâto compare odd-lot data alongside round lots to try to identify patterns, predict price movements, and execute trades more efficiently. There are a few reasons why analysis of odd-lot trading plays an important role in todayâs markets:
- Gauge of retail investor participation. Retail investors often trade in smaller quantities, a trend amplified by the rise of commission-free trading platforms and fractional share investing, which allow individuals to buy portions of high-priced stocks without needing substantial capital.
- Retail investor sentiment. Odd-lot activity may offer insight into how smaller investors are responding to economic events, earnings reports, or geopolitical developments.
- Liquidity and price discovery. Odd-lot trading contributes to market liquidity and price discovery, and even small trades can sometimes influence stock prices, especially in less liquid markets or during heightened volatility (odd-lot trading soared during the meme-stock frenzy in early 2021).
Data on odd-lot trading can be found from several sources, including the SECâs Odd Lot Rate data tracker, along with exchange data and trading analysis.
Disadvantages of trading and analyzing odd lots
Although odd-lot trading has made markets more accessibleâand can offer insight as a market indicatorâit also comes with some drawbacks.
- Excluded from NBBO. Because odd-lot quotes are officially excluded from the calculation of the NBBO, they may not set the public âbestâ price, and brokers are not always required to match them as they would an NBBO-protected round-lot quote.
- Lower execution priority. Because they are not protected quotes, odd-lot orders typically experience lower priority at execution venues, are sometimes treated as âinactive,â and may not be filled as quickly as standard units.
- Wider bid-ask spreads. Even with zero-commission trading, costs can show up in the bid-ask spreadâthe gap between what buyers are willing to pay and sellers are asking. Smaller odd-lot trades often face wider spreads, increasing the effective cost of execution.
- Lack of margin support. Features like margin borrowing and short selling may be limited or handled differently for odd-lot orders because they require additional steps behind the scenes.
Some market professionals question the utility of odd lots as any sort of indicator. Thatâs partly because automated trading algorithms often break large orders into smaller piecesâincluding odd lotsâmaking it harder to distinguish between retail, institutional, and market maker activity.
No single market indicator tells the whole story. Rather than relying on odd-lot data alone, you might want to pair it with other sentiment gauges such as the Cboe Volatility Index (VIX) or the put-call ratio. On its own, odd-lot trading can misleadâbut alongside other indicators, it can help fill in the picture.
And if youâre trading in odd lots, remember that execution matters more than the signal. Use limit orders, watch the bid-ask spread, and donât assume the displayed price tells the whole story.
This article was most recently revised and updated by Bruce BlytheThis article was most recently revised and updated by Doug Ashburn
