An odd lot refers to an amount that's less than the typical number of shares or units you'd trade for an asset.
In stock trading, an odd lot would describe any amount less than 100 shares of a stock, which is considered a standard – or "round" – trading unit. This number can vary from one exchange to another, however. Because many brokerage firms specify minimum units for trading securities, the commission you pay on an odd lot may be higher than what you'd pay per share for a round lot.
As far as trading odd lots, the only major difference is the amount of commission you may end up paying per share. Otherwise, if you find your portfolio has an odd lot in it, you can trade it as you would any other asset.
A primary reason why you may find an odd lot in your portfolio is that the company did a reverse split. A reverse split is when the company reduces the number of outstanding shares, thereby increasing each share's value. For example, suppose a company wants to do a one-for-six reverse split, and you hold 300 shares of that company – or three standard lots. After the reverse split, you'd have 50 shares, which would be an odd lot because it's less than 100.
Suppose each share was worth $10, and the trading firm you were using charged a 1% commission based on a minimum trade size of 100 shares. That means if you sell 200 of your original 300 shares, you will end up paying 1% of $2,000 – or $20 for the trade.
But suppose you wanted to sell the same percentage of the shares you had after the reverse split, or about 66.7% of 50, which would be about 33 shares. If your broker's policy for trading odd lots still requires you to pay the minimum – based on a lot size of 100 – you would end up paying $10 for selling the 33 shares you owned after the reverse split. That's because you'd pay 1% of the minimum lot size, 100, which would be worth $1,000, and 1% of $1,000 is $10.
Reinvesting dividends can also create odd lots since you will receive additional shares that may be less than the minimum lot size.
See:
Best Online Brokers in 2022 ]It's important to know about odd lots because you could end up paying a higher commission than what you expected if you trade under the minimum lot size. This is particularly true if you're calculating your commission as a percentage of the number of shares you're trading.
