What is a Mixed Lot?
- A mixed lot order is a blend of round lot, which are standardized trading amounts, and odd lot, which are non-standardized trading amounts, orders.
- A mixed lot is an order to transact in a security for an amount that is not a round (or whole) lot order amount but is larger than the smallest round lot amount.
- Commissions for mixed lots are generally higher than those of standard, round lot trades, since they contain odd lots as well, a situation termed "the odd-lot differential."
Understanding a Mixed Lot
A mixed lot is an order to transact in a security for an amount that is not a round (or whole) lot order amount but is larger than the smallest round lot amount. Since this order cannot fit the round lot requirements, it has to be a combination of a round lot order and an odd lot order. A round lot is the exchange-established trading unit, which defines the interval at which securities typically should be traded. An odd lot is an order that falls below the initial round lot amount.
Stocks typically trade in round lots of 100, which means orders made in these multiples are traded easily between parties. An odd lot would be all orders for 99 shares or less. If an investor wanted to buy 425 shares, they would have to use a mixed lot order, which is broken into a round lot order for 400 shares (4 x 100) and an odd lot order for 25 shares.
The fees brokers normally charge are based on the standard size for trading. For stocks this is the equivalent to a round lot or 100 shares. Commissions for mixed lots may put a dent in a trader's return because they are generally higher than those of standard, round lot trades, since they contain odd lots as well. This is called an odd-lot differential. These orders require a round lot in order to be executed simultaneously. Many odd lots piggyback onto round lot transactions.
Aside from commission fees, there are a few other ways mixed lot trades differ from standard trades. First, they don't impact the bid/ask price. Remember, the bid is the price a buyer will pay for a security and the ask price is what a seller will accept for the same security. Mixed lot trades also take longer to settle than standard trades, especially if there are no round lot orders coming through. According to the SEC, standard trades take two business days to settle.
Benefits of Trading in Round Lots vs. Mixed Lots
Stock exchange trading systems are primarily set up to handle round lots. When submitting such a trade, it will show up on the bid/ask pricing data sent to traders from the exchanges. But odd-lot orders (a mixed lot order is broken into a round lot and odd lot) are not included in these data reports. Traders often use bid/ask information to see where supply and demand are strongest in the markets. Also, round-lot orders can be routed to off-exchange trading systems, where you might get a better price or faster execution of your trade. However, exchanges give preference to the completion of mixed-lot orders over odd-lot orders.