Brennan Doherty is a Toronto-based writer whose work regularly appears in the Toronto Star, Globe and Mail, TVO Today, Future of Good, and other publications. He earned his B.Journ from Toronto Metropolitan University, covered everything from cannabis to oil and gas as a Calgary reporter for the Toronto Star, and was once thrown off a cow in a mere 2.8 seconds. For journalism, of course.
How to understand odd lots in 1 minute:
Odd lots are a little like cricket: confusing at first, but important to a lot of people. Unlike cricket, though, they don’t require any sort of protective padding — and they’re a fundamental part of stock trading. And while a lot of retail investors may have never heard of them, most have traded them, whether they know it or not.
A majority of stocks are sold in nice, even groups of 100 (or 500 or 1,000), called board lots. But not everybody can or wants to buy 100 shares of a particular stock. That’s where odd lots come in. Anything less than a board lot is an odd lot. So if you were to buy 100 shares of a company called Kale, that’s a board lot. If you buy seven shares, that’s an odd lot. And if you buy 107 shares, that’s a mixed lot. Your trade would be split into a board lot and an odd lot — so, 100 shares and seven shares — and each part would be traded separately.
Why does it matter? Most stock exchanges match board lot buyers and sellers, but that’s not the case with odd lots. Those orders need to be facilitated by financial institutions called market makers. Because of that, they’re handled a little differently than board lots. There are rules for how odd lots get traded, and there are even different rules for Canada and the U.S. Here’s how it all works (and how it works in Canada, specifically).
How to understand odd lots in 10 minutes:
What are odd lots?
Odd lots are buy and sell orders that don’t fit precisely into groups of 100, 500, or 1,000 shares — groupings called board lots. Board lots exist because they standardize trades and make it easier for brokers to match buyers and sellers. And odd lots exist because not everyone wants to trade in board lots.
The actual number of shares in a board lot varies based on the value of the stock, but the overall concept is the same.
|Stock Price||Number of Shares in a Board Lot|
|$1 or more per share||100|
|$0.10-$0.99 per share||500|
|Less than $0.10 per share||1,000|
Anything less than a board lot is an odd lot. So 30 shares of $KALE is an odd lot. If you buy more than a board lot that is not a multiple of a board lot — for example, 130 shares of $KALE — that is a mixed lot and will be treated as two buy orders: one board lot and one odd lot of 30 shares.
How are odd lots traded?
From the investor’s side, buying or selling an odd lot feels pretty similar to buying or selling a board lot. You decide how much of the stock you want to trade, tell whatever online or real-life broker you use, and wait for confirmation. It seems easy. And it is, for you. But there’s a whole lot of stuff going on in the background.
Most odd lot orders are handled by market makers: financial institutions that buy and sell assets to keep the market moving. If there weren’t market makers and you wanted to sell seven shares of a stock, you’d need to go out and find another person interested in buying precisely seven shares of that same stock.
How are odd lot prices determined?
The price you pay for odd lots depends on something called the Protected Canadian Best Bid and Offer (CBBO). The CBBO is pretty much what its name suggests: the best bid (price someone is willing to pay) and the best offer (price someone is willing to sell for) available on a particular stock across the multiple Canadian marketplaces that have been defined to be included in this calculation. Odd lot orders are guaranteed to fill at the CBBO.
For example, if $KALE is offered at $8.89 a share on the TSX and $8.84 a share on Nasdaq Canada, the Canadian Best Offer for it is $8.84. If $KALE is bid at $8.82 on the TSX and $8.80 on Cboe Canada, the Canadian Best Bid is $8.82. So in this example, the CBBO would be $8.82-$8.84. If you placed a limit buy order at $8.89 for seven shares, your order would be filled at $8.84, because that was the CBO.
How are odd lot trades different from board lot trades?
There are a few ways trading odd lots is different from trading board lots. And it can be a little confusing — and frustrating — for traders.
1. Odd lots and board lots don’t trade in the same place.
Shares traded in a big market like the TSX are logged in “books”’ (a throwback to when Ye Olde Markets recorded all trades in an actual leather-bound ledger). These days, the “book” is an advanced computer system that displays individual orders and matches them. Board lots are traded through the Continuous Order Book (also called the Central Limit Order Book, or CLOB), a real-time market that matches individual orders. Orders within the CLOB are able to trade with each other, instead of relying on a market maker. Users can also see individual orders on the bid or ask, the sizes of these orders, and the prices in real time. Odd lots, however, go through the Odd Lot Book. As we mentioned above, in Canada, the Odd Lot Book automatically guarantees that any odd lot order will be completed at the CBBO. That means if you place a $KALE buy order for $8.82, it will go through immediately if the CBO is $8.82 or less. If the CBO is higher than your buy order limit price, your order will be displayed in the Odd Lot Book until the offer price falls to $8.82 or lower — at which point it will automatically execute. Odd lots trade as “all or none” on the TSX or TSX Venture. So if you are looking to buy seven shares of $KALE at $8.82, once the offer is $8.82 or better, your offer will automatically be filled on the full amount — never less.
2. The Odd Lot Book’s trades may not be reflected in a stock’s historical data.
Typically, a stock’s High, Low or, Open prices show only board lot trades. This can occasionally lead to confusion when the price an investor received for an odd lot order is outside the High or the Low of the day — even though they execute at the CBBO at the time of the order. That happens because, if no board lot traded at the price the odd lot did, the odd lot transaction is not recorded as an official price (called a “tick” if you’re trying to impress someone in a Patagonia vest). And, therefore, it would not be reflected in the High, Low, or Open prices.
3. A stock can trade at your limit price all day but your odd lot order may never get filled.
Outside of the one rare occasion mentioned above, odd lot orders fill only when your limit price matches the CBBO or better. If that doesn’t happen, your order won’t be filled. For example, say you place a buy order for shares of $KALE with a limit price of $8.82. Board lot buy orders could be filling on the bid at $8.82, but your odd lot order will not fill until the CBO price becomes $8.82 or better.
4. Odd lot trades don’t go through the instant markets open.
For TSX and TSX Venture listed securities, every morning, before the 9:30 a.m. EST bell, an algorithm considers all of the pre-opening orders for each stock and settles on a figure called the Calculated Opening Price (COP). Once that’s decided, the bell sounds and any odd lot orders submitted at that price or better go through. Odd lot orders don’t start trading until all orders at the COP are matched and the market widens to create the bids and offers: the CBBO. So even if you have an order to buy five shares at $100, and that ends up being the opening price, if the CBO is not $100 (or lower) after the market opens, your odd lot order will not fill at that time. For example, say the opening price on the stock you want to buy is $100, but the CBBO is $99.95-$100.05 post-open. Until the CBO gets to $100, your odd lot order will remain unfilled. It should be noted that for NEO-listed securities, if there is an official COP for that particular stock (if buys and sells are matched at 9:30 a.m.), odd lot orders will fill right after the official open at the NEO-L COP.
Are odd lots worth it?
It’s tempting to think odd lots aren’t worth the hassle. They don’t participate in market opens, they operate in different ways, and it takes some real effort to understand how they work. However, the system has some advantages. Maybe the biggest: they let retail investors buy small amounts of stock. Without odd lots, if you wanted to add a stock to your portfolio, you’d have to have enough money to buy at least 100 shares.
Odd lots also have a degree of certainty that board lots don’t. If there isn’t enough liquidity in a particular company’s stock, an order made up of board lots might not be filled. That isn’t the case with odd lots. These trades automatically execute fully once the CBBO becomes the buy or sell price (or better), no matter what.
One important note: you can’t break larger orders into smaller orders to take advantage of odd lots’ automatic executions. Breaking a larger order into a smaller one that takes advantage of the odd lot facility is against the CIRO Universal Market Integrity Rules and could result in your account being suspended.
Odd Lots FAQs
If this was an odd lot order, the most likely explanation is that the limit price never became the offer (or better), so the order did not get filled.
This goes back to the fact that the prices you see on most market charts and historical data are for board lots, not odd lots. And that means the daily highs reflect board lots, not odd lots. Your odd lot order would have been filled at the CBBO, but if no board lots were traded at that price that day, you’d see a different high.
On the TSX and TSX Venture, the COP, which is determined by an algorithm before the market’s opening bell, applies only to board lots. Odd lot orders cannot be fulfilled until after the bell, when there has been time for a bid and offer price to be set, establishing the CBB and CBO. Once that happens, odd lot orders go through at the CBBO.
This situation might happen because you have what’s called a mixed lot order on a TSX or TSX Venture listed security — part board lot and part odd lot. A 107-share buy limit order on a $20 stock is a mixed lot. As such, it would be dealt with in two separate transactions: a 100-share board lot order and a seven-share odd lot order. In that situation, the board lot order might fill in the CLOB. But there’s a catch: if the best offer in Canada doesn’t hit your limit price of $20 or better, it won’t fill. What does that leave you? A fill for just 100 shares, not the full 107.
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