Have you ever wondered what traders call a batch of 100 stock shares? That magic number has a special name in the investing world, and knowing it can help you understand how the stock market functions. Whether you’re a newbie investor or just curious about trading terminology, I’ve got you covered!
What Are 100 Stock Shares Called?
100 stock shares are called a “round lot.” This is the standard trading unit for stocks on most exchanges. When investors or traders purchase exactly 100 shares or multiples of 100 shares (like 200, 300, etc.), they’re trading in round lots
As someone who’s navigated the investment world for years, I can tell you that round lots are super important to understand if you want to trade efficiently!
Why Round Lots Matter in Stock Trading
Round lots aren’t just a fancy term – they actually serve several important functions in the market:
- Lower trading costs – Trading in round lots typically incurs lower transaction fees than smaller quantities
- Faster execution – Orders placed as round lots often get executed more quickly
- Market efficiency – The standardization helps simplify the trading process
- Pricing transparency – Round lot trades are reported differently than smaller trades
I remember when I first started investing, I didn’t know about round lots and wondered why my broker kept suggesting I purchase in multiples of 100. Now it makes perfect sense!
Beyond the Basics: Types of Trading Lots
The stock market has specific terminology for different quantities of shares:
| Lot Type | Definition | Example |
|---|---|---|
| Round Lot | 100 shares or multiples of 100 | 100, 200, 500 shares |
| Odd Lot | Fewer than 100 shares | 25, 50, 75 shares |
| Mixed Lot | Combination of round lot plus odd lot | 150, 275 shares |
Round Lots Across Different Assets
While 100 shares is standard for stocks and ETFs, round lots work differently for other financial instruments:
- Bonds: A round lot typically equals $100,000 worth
- Options: 100 contracts in listed calls and puts
- Futures: Varies by the underlying asset (e.g., 5,000 bushels for wheat futures)
- Forex: Standard lot = 100,000 units of the base currency
The Evolution of Round Lots in Modern Trading
Historically, the 100-share round lot was the smallest order that could be placed through an exchange. But times are changing! Today’s technology has made trading more accessible than ever.
With electronic trading systems becoming more sophisticated, odd lots and even fractional shares are becoming increasingly common. Many brokerages now allow you to purchase partial shares, which is great for expensive stocks like Amazon or Google that might cost thousands per share!
As one investment advisor told me, “Ten years ago, we’d never recommend anything less than a round lot. Now we help clients buy fractional shares all the time.”
Who Trades in Odd Lots?
An investor who purchases shares in small or unusual quantities (less than 100) is known as an “odd lotter.” Typically, odd lotters are:
- Individual retail investors with limited capital
- Investors who want to diversify across many different stocks
- People buying expensive shares that would require too much capital for a full round lot
- Investors using dollar-cost averaging strategies with fixed dollar amounts
There used to be a trading strategy called “odd lot theory” based on the idea that odd lotters were less informed investors. The theory suggested doing the opposite of what odd lotters were doing! However, this theory has fallen out of favor as analysis showed little evidence that it works effectively.
Advantages of Trading in Round Lots
If you can afford it, there are definite perks to trading in round lots:
1. Potentially Lower Costs
Many brokers historically charged higher commissions for odd lot trades. While this practice has diminished with modern discount brokers, some fee structures still favor round lots.
2. Better Execution Prices
Round lots may receive better execution prices since they’re processed through standard trading mechanisms.
3. Simplified Trading
Trading in round lots simplifies your portfolio tracking and management.
4. Discounts and Preferences
Investment managers and institutions often receive discounts when purchasing in round lots, and some exchanges give preference to round lot orders.
The Changing Landscape: Are Round Lots Still Important?
The significance of round lots has diminished somewhat in recent years. Here’s why:
-
Technology Advances: Improved electronic trading has reduced the cost differential between odd and round lots.
-
Retail Investor Demand: More small investors want access to expensive stocks without committing large amounts of capital.
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Fractional Share Trading: Many brokerages now offer fractional share investing, making even smaller investments possible.
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ETFs and Mutual Funds: These investment vehicles allow diversification without needing to purchase round lots of individual stocks.
As one market analyst noted, “Round lots aren’t as crucial as they once were, but they’re still the standard unit for institutional trades and market makers.”
Real-World Example: Round Lots in Action
Let’s say you want to invest in Company XYZ trading at $50 per share:
- Round Lot: 100 shares would cost $5,000
- Odd Lot: 25 shares would cost $1,250
- Fractional Shares: $500 might buy you 10 shares
In the past, buying the odd lot might have incurred higher fees or received less favorable execution. Today, many brokers treat these trades similarly, but some market dynamics still favor round lots.
Tips for New Investors
If you’re just starting out, here are some practical tips regarding round lots:
- Don’t feel pressured to always buy in round lots if it exceeds your budget or investment strategy
- Consider fractional shares if you want to invest in expensive stocks
- Check with your broker about any fee differences between odd and round lots
- Be aware that some trading strategies (like certain limit orders) might work better with round lots
- Remember that ETFs and mutual funds can provide diversification without needing to worry about lot sizes
FAQ About Round Lots
Q: Do I have to buy stocks in round lots?
A: No, you don’t have to. Most brokers allow odd lot trades, though some trading strategies work better with round lots.
Q: Are there higher fees for odd lots?
A: Historically yes, but many modern brokers charge the same fees regardless of lot size. Check with your specific broker.
Q: What’s the difference between a round lot and a board lot?
A: In most exchanges, these terms mean the same thing – 100 shares or multiples of 100. However, some exchanges might have different board lot sizes (like 1,000 shares on Japanese exchanges).
Q: Can I sell part of my round lot as an odd lot later?
A: Absolutely! You’re not required to sell in the same quantity that you purchased.
Q: Why is 100 the standard for a round lot?
A: The 100-share standard evolved over time as a practical trading unit that balances efficiency with accessibility.
Conclusion: Round Lots in Your Investment Strategy
Understanding round lots is part of becoming a more informed investor. While trading in multiples of 100 shares has its advantages, don’t let this convention limit your investment strategy. Modern markets have become more accommodating to investors of all sizes.
Whether you’re trading round lots, odd lots, or fractional shares, the most important thing is having a sound investment strategy that aligns with your financial goals and risk tolerance.
I personally started with odd lots when I began investing (because that’s all I could afford!), gradually building up to round lots as my portfolio grew. The markets are more accessible than ever before, so don’t let terminology or conventions keep you from getting started.
Remember, successful investing isn’t about how many shares you own, but making wise choices based on thorough research and a clear strategy!
Have you had experiences trading in round lots vs. odd lots? I’d love to hear about them in the comments below!
