Blocks of 100 shares are the standard trade size on U.S. stock exchanges. You can tell your broker to buy or sell any whole number of shares, but sticking to multiples of 100 can give you some advantages when actively trading. However, you also should size your trades in respect to several factors including commission costs.
Round and Odd Lots
In stock market jargon, 100 shares and multiples of 100 are referred to as "round lot" trades. A trade for one to 99 shares is an "odd lot." A trade for more than 100 shares but not a multiple of 100 is a "mixed lot." If you plan to trade in 100-lot blocks, your trades of 100, 500 or 2,500 shares will all be round-lot trades. However, if you put in a trade for 250 shares, that's a mixed-lot trade.
The stock exchange trading systems are primarily set up to handle round lots. When you submit a round-lot trade, the trade will show up on the bid/ask pricing data sent to traders from the exchanges. Odd-lot orders are not included in these data reports. Traders often use bid/ask information to see where supply and demand are strongest in the markets. Also, round-lot orders can be routed to off-exchange trading systems where you might get a better price or faster completion of your trade. The exchanges give preference to the completion of mixed-lot orders over odd-lot orders.
Odd Lots Becoming Less Odd
Before the age of online brokerage accounts and massive computerized trading systems at the stock exchanges, an odd-lot order could wait a while before an investor or trader was found to take the other side of the trade. The move into computerized trading results in odd-lot trades being completed as fast or almost as fast as round-lot trades. In 2010, the New York Stock Exchange got rid of its separate trading system for odd lots, and those smaller share trades are now included in the NYSE's regular routing and trading system.
Brokerage Account Considerations
To trade round lots, you just need to make sure you enter multiples of 100 shares when you buy or sell stocks. The broker's online account trading screen will let you set a specific share number when you go to trade. So if you usually go with 500 shares, set that number as the default trade size. Your broker will charge the same per trade commission if your trade is a round lot, an odd lot or a mixed lot. So you can make round lots your standard practice, but don't avoid an odd-lot or mixed-lot trade size if that fits better into your trading plan.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.