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Odd-Lot Differential

Odd-Lot Differential

If you are buying or selling stock in an Odd-Lot, that means you are buying or selling fewer than 100 shares or 100+ shares (but never an even round number of 100s). In general, Odd-Lots don’t necessarily get the market price you’ll see on your computer screen. The price may actually be worse if you’re selling or buying the stock because traders and market makers tend to make their markets in round-lots. In the past, an Odd-Lot Differential would occur which is the difference between the price of stock in 100 Lots and the price for less than 100 Lots. In this case, you would get a worse price buying or selling the stock.  However, since trading is becoming more electronic, Odd-Lots won’t be much of a problem.

Generally, the dealer who facilitates an odd-lot transaction will buy the securities 1/8 or 1/4 point below the next round-lot trade, or sell the securities 1/8 or 1/4 above the next round trade. View the video below to learn about Odd-Lot Differential:

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Jack Farmer – Curriculum Director at New York Institute of Finance
Jack specializes in training and consulting solutions for portfolio risk management, FX and interest rate derivatives and trading, equity index and volatility trading, equity derivatives and structured equity products, financial statement analysis and hedge accounting.

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