Before computers, your stockbroker took your phone order and wrote it down on a slip of paper. From there, a succession of clerks passed it forward to a specialist in that stock on the exchange, who matched buy and sell orders for execution. Brokerages and exchanges encouraged clients to facilitate this process by ordering in multiples of 100, called "round lots." "Odd lot" orders of less than 100 shares were usually charged a higher commission per share, and executed after all round lots in the order queue. Even in the early 1990s, vestiges of this system remained. By 2000, a fully computerized platform replaced it.
Placing an Order
As of 2013, you place an order to buy 100 shares of stock by either giving it to your broker or by entering it on your online broker's order input screen. Either way, you usually receive an order confirmation without delay. The exceptions are when daily trading volume is unusually high; when your stock is so thinly traded that a matching buy or sell order may not be immediately available; or when there are strong order imbalances, because a preponderance of either buy or sell orders exists. This can happen immediately following the release of important company news, such as higher than expected earnings or unanticipated losses.
Algorithmic Order Matching
Once the order is entered, buying and selling a stock is entirely computer-driven. Computer algorithms accept thousands of buy and sell orders for a stock, and efficiently match and execute them within fractions of a millisecond. You can order in round lots of 100 shares to simplify the process for yourself, though specific order sizes make little difference otherwise. Odd-lot orders are instantaneously grouped, and large orders instantaneously broken down into whatever group size the algorithm determines most efficiently carries out the order process.
Because computerized order processing matches buy and sell orders, neither brokers nor major exchanges discourage odd-lot orders or charge a premium for them. Delays still occasionally occur when the trade involves an odd lot of a thinly traded stock, or a trade made away from any of the major exchanges. In 2009, a trader reported that making an odd-lot trade remained difficult on the Toronto Venture Exchange, though this was a rare, isolated instance.
Round Lot Advantages
If you still want to trade in blocks of 100 shares, you're in good company. Most investors and traders do. The main advantage is that it makes it easier to keep track of costs and profits. If you have $15,000 available for trade and buy a round lot of 100 shares at $15 each, you don't need a calculator to figure out that you've spent $1,500 and have $13,500 left. If you buy 147 shares, you may have to do the calculation. If you've sold 10,000 shares and have made 5 cents a share, you can do any of several simple mental calculations of the profit.
- New York Stock Exchange Systems and Trading Procedures; Joel Hasbrouck, George Sofianos and Deborah Sosebee
- Financial Dictionary: Order Imbalance
- Google: Computerized Stock Exchange Trading System
- Ask MetaFilter: Is Trading Round Lots Tradition or Good Practice
- Trading Shares in Milliseconds; Bryant Urstadt
Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.