Tiny trades are making up a record share of market activity — and it's likely the result of historically high prices and algorithmic trading

Associated Press
  • “Odd lot” trades – or stock trades involving fewer than 100 shares – are becoming more commonplace, making up nearly half of all trades in early October, according to The Wall Street Journal, which cited New York Stock Exchange data.
  • The shift has been driven by a steady rise in average share prices and surging popularity of algorithmic trading.
  • Trading programs often cut large exchanges into smaller segments spread out over time, and expensive stocks require more cash for high-volume trades.
  • The shift from round-lot trades – those made in multiples of 100 shares – could require new market regulation, as odd-lot trades aren’t shown on public data feeds and aren’t used in exchanges’ best price quotes.
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“Odd lot” trades – stock purchases or sales involving fewer than 100 shares – now make up nearly half of all trades after doubling since 2016, the Wall Street Journal reported, citing New York Stock Exchange data.

The small trades were previously a small segment of all stock transfers, making up just over 20% of trades five years ago. Yet an increase in high-price stocks and automated trading programs drove a surge in odd-lot exchanges. The proportion of trades in that size reached a record 48.9% on October 7 and has stayed above 40% since, according to WSJ.

While no S&P 500 companies traded above $US1,000 per share in 2012, five now do, including Amazon and Google-parent Alphabet. The record-long bull market has inflated the rest of the market, with the average price of stocks in the S&P 500 more than tripling since 2009, according to Strategas Research data cited by WSJ.

The move to higher prices leads investors to have to hand over more upfront for trades involving multiples of 100 shares, also known as “round lot” trades.

Read more: ‘A licence to print money’: A former chemical engineer and Ph.D. with no market experience now makes a living day-trading full time. Here’s his 3-step process to finding that one successful trade that makes his day.

The influx of technology and programming into the once trader-dominated stock market has also driven up the popularity of odd-lot exchanges.

Algorithmic trading often divides large sales or purchases into smaller segments to spread out a trade and avoid a large price change that could alert other investors. Though banks used to cut large trades into round-lot exchanges, they’re increasingly using odd-lot trades for segmented orders, according to WSJ.

“We now live in a world of algos and slicing and dicing,” Cornell University finance professor Maureen O’Hara told WSJ.

The shift from round-lot trades presents a few issues in the slow-to-change world of market regulation. For instance, odd-lot quotes aren’t shown on public data feeds, allowing the small trades to go hidden from many investors’ fields of view.

Brokers also face challenges born from the shift to odd-lots. The firms are obligated to execute trades at the best price posted on an exchange, but the prices are taken only by round-lot quotes. Best price quotes could become less accurate if the trend continues, as odd-lot trades would account for more of a stock’s price movement.


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