An odd lot is an order for a number of shares of a stock that is less than the normal unit of trading, which is known as a round lot. Traditionally in the U.S. market, a round lot is 100 shares. So, any order from 1 to 99 shares is considered an odd lot. In decades past, trading odd lots was like trying to buy a single egg from a wholesaler—it was inconvenient, inefficient, and often came with extra costs. Brokers would charge higher commissions or execute these trades at slightly worse prices. However, the digital revolution in finance has completely changed the game. For the modern individual investor using an online brokerage account, the distinction has become almost purely academic. Thanks to technology, buying 7 shares of a company is now just as easy and cheap as buying 100, effectively democratizing market access for investors of all sizes.
Picture the bustling, paper-strewn floor of the New York Stock Exchange in the 1970s. Orders were shouted, and trades were recorded by hand. In this environment, handling an order for 100 shares was standard practice. Handling an order for, say, 17 shares was a nuisance. It broke the workflow. To deal with this, the market had specialized odd-lot dealers who would bundle these small orders together. They would buy up odd lots from sellers and accumulate them until they had a round lot to sell, and vice-versa for buyers. This service wasn't free. The dealer would take a small cut, known as the “odd-lot differential,” meaning individual investors bought at a slightly higher price or sold at a slightly lower price than their round-lot counterparts. This, combined with higher transaction costs, created a significant disadvantage for the small “Main Street” investor.
Fast-forward to today. The trading floor has been replaced by servers, and trades are executed in microseconds. This technological leap has made the odd lot's historical disadvantages obsolete.
For a time, the world of odd lots gave birth to a popular piece of market folklore: the Odd-Lot Theory. This was a contrarian indicator based on a rather cynical assumption: that small individual investors—the “odd-lotters”—were uninformed “dumb money” who consistently made the wrong moves. The theory posited that when odd-lotters were buying heavily, it signaled a market top was near, and smart money should sell. Conversely, when they were panic-selling, it was a sign of a market bottom and a great time to buy. While it may have had some relevance in an era of limited information, the Odd-Lot Theory is now widely considered unreliable and anachronistic. The modern retail investor is often well-informed, and the data is skewed by the ease of trading and automated investment plans.
For today's value investor, the most important thing about odd lots is the freedom they represent. The ability to seamlessly trade in odd lots is not a trivial matter; it's a powerful tool that supports a disciplined investment process.
In conclusion, while the term “odd lot” itself is a throwback to a bygone era of trading, the underlying ability to buy any number of shares you want is a massive win for the individual value investor. It allows you to think like a business owner, deploying your capital with precision, rather than a floor trader constrained by round numbers.