What Are 100 Shares of Stock Called?
Explore the standardized ways stock shares are traded and how these concepts apply in today's dynamic markets.
When individuals engage in the stock market, they buy and sell ownership units in companies, known as shares. These units represent a fractional ownership stake. Historically, stock trading was organized around specific quantities or standardized blocks, which influenced how shares were priced and exchanged within financial markets.
Understanding the Round Lot
A quantity of 100 shares of stock is referred to as a “round lot” in the financial industry. This term signifies a standard unit of trading for securities, particularly common and preferred stocks. Historically, a round lot was considered the minimum order size that could be placed through an exchange, simplifying the trading process and enhancing market efficiency. Bids and offers were often displayed in these uniform blocks. Investment managers and institutions frequently utilize round lots for large-scale transactions.
Historical Significance of the 100-Share Unit
The establishment of 100 shares as the standard “round lot” stems from the pre-electronic trading era. When transactions were recorded manually and calculations performed without advanced computing, standardized blocks of shares made operations significantly more efficient. This unit helped brokers and stock exchanges process orders uniformly, reducing complexity in an environment that relied heavily on human intervention. Options contracts also adopted this tradition, with each standard option contract representing 100 shares of the underlying stock.
Trading in Odd Lots
An “odd lot” refers to any quantity of shares less than the standard 100-share round lot, or a quantity not a multiple of 100 shares. Investors might accumulate odd lots through dividend reinvestment plans, corporate actions like reverse stock splits, or by purchasing fewer than 100 shares directly due to limited capital or specific investment goals. Historically, trading odd lots often incurred higher brokerage fees per share or less favorable pricing. This was due to the increased effort required by brokers to aggregate these smaller orders into round lots for execution, which could also lead to reduced liquidity for odd lot transactions.
Current Relevance in Modern Markets
In today’s electronic and automated trading environment, the practical impact of “round lots” and “odd lots” on the average retail investor has significantly diminished. Technological advancements allow for the efficient execution of virtually any share quantity, including individual or fractional shares. Fractional share ownership, where an investor can buy a portion of a share, further blurs traditional distinctions, making investing more accessible regardless of share price. While the terms still exist, electronic trading systems and reduced commission structures have largely eliminated the historical disadvantages of trading odd lots. However, for institutional investors and large block trades, the concept of round lots still holds practical weight, as they continue to trade in substantial, often 100-share, increments.