Hey it’s Sasha Evdakov and welcome to Tradersfly.com where I share with you some insight about investing and trading in the stock market. This week's video what I'd like to do is share with you some insight about Round Lots and Odd Lots when it comes to trading your group or group of shares.
What I’m talking about a lot, really referring to a group or the amount of shares that you’re trading not in terms of trading a huge bunch of lots of quantity, I'm talking about the group of shares. In this video what I'd like to do is really dissect a Round Lot and an Odd Lot and the appropriate way that you should be trading so first off what is an Odd Lot and a Round Lot.
Well if we go back in time and we go to let’s say grade school if you remember the number twenty that usually breaks down into a nice even number, it breaks down very healthy in a lot of different forms and factors.
It’ll breakdown in two in 5 or 4. You can also pull a 10 and 2 from there so you have numbers that you can pull from the twenty it's a nice number to work with and also has 0 at the end so if you multiply it makes things a lot easier.
Now if you look at the number seventeen which is very close to twenty but breaking the number seventeen down is a lot more difficult, it’s problematic. Now in the stock market we have the same kind of concept we have the Round Lot which will be your number 20 for example or we have a problematic number or an Odd Lot which could be like 17 shares. So if you’re trading in lots, in lots of 100 that is typically the traditional lot size.
So if you’re trading in a 100 shares, 200 shares, 500 shares, 1,000 shares, 1,500 shares 10,000 shares if you’re trading a nice even numbers it's typically the better approach for your share quantity and that is because of a few different reasons the first reason is really comes down to its just easier to calculate your profits losses and just easier to work with the numbers because you have a lot of zeros at the end and you’re just doing some basic multiplication within your own mind to get to your desired result.
If you have one hundred shares and a stock goes up $1.22 you can do the calculations and know your profit very quickly. Now on the flip side if you have 97 shares and you're trying to calculate if a stock goes up a dollar or 35, to figure out that exact precise number makes it much more difficult you may even need to get out a calculator because you're trying to get precise numbers it's really more difficult to calculate.
That's kind of the first advantage to trading a Round Lot versus trading an Odd Lot numbers that you're able to calculate things very quickly and if that didn't really interest you or you weren't really a fan of that then one of the next advantages is really that so many other people are trading in Round Lots they’re trading in those kinds of numbers and if you're all trading in those kinds of numbers it's a lot easier to get in and out of trades.
For example people are executing trades at 100 shares, 200 shares, 500 shares, or a thousand shares and because they're doing that that means if you want to buy a hundred shares it's a lot easier to get in and out of that stock.
Now you can trade Odd Lots, you can trade in not hundred batches so for example not 100 shares, if you want to trade something along the lines of 50 shares you can go ahead and do that there's absolutely nothing wrong with that however sometimes it's a little more difficult to get filled and the reason for that is because other people may not be trading it in that form.
The more weir or the more Odd Lot that you get, the more difficult it may be to get in or out of that stock so if you ever tried to trade let's say 17 shares or a 133 shares your order may actually get filled not in just one nice solid fill order but it may get filled in multiple orders and in a split order fashion and you typically won't be charged multiple commissions for this but sometimes you will get some price slippage or different prices on your fills when it comes to these kinds of things because it just depends how you execute the order and it depends on your broker.
That's something to check up on. To get a good insight of the type of quantities and the lot sizes that people are trading in a certain stock which could do is open up the time in sales and just see how those orders are being executed and how many shares are being executed at any given time.
If you take a look at this screen right here you can see that the time and sales how people are executing their orders you can see in the different lot sizes. You’ll notice many of them are Round Lots and then some of them you also have some Odd Lot numbers which sometimes work out fine and without a problem but the majority of them are nice rounded numbers.
Alright so if you already understand, I probably should be trading in nice Round Lots what happens if you can't trade in a Round Lot for example an expensive stock outlets a $250 and maybe you can only buy 12 or 13 shares well in this case or situation what you want to do is get to the next closest nice and healthy number.
For example typically 100 is the ideal situation in terms of trading your shares that you want to get to so if you can get to a hundred shares that would be great but if you can't get there and you can only trade 10 or 20 shares that's still a lot better than trading 12 or 21 shares so what you want to do then is find a pattern or a way to break those shares down into multiples of 10 or multiples of five or multiples of 25 or 50.
If you can do something like 5, 10, 25, 20, 50, 75, 100, all these different kinds of qualities that breakdown nice and even it'll be a lot better for you rather than trying to trade something like thirty one shares or 72 shares so trying to find a nice healthy even Round Lot number that way you can get in and out of that stock a lot easier.
Now I do want to add in one additional bonus insight to this video and that is if you know about options. One option contract refers to 100 shares of stock or at least the control of 100 shares of stock or equity so if you're looking to have 100 shares and you're looking to protect it with a put or purchasing a put then what you can do is purchase one put and that will help offset your 100 shares of stock.
If you have 200 shares of stock or 300 shares of stock, what you can do is buy or purchase two or three putts and that will control your 200 or 300 shares of stock so you can see how this works 1 on 1 together within options and why people trade in lots of 100 because once you start adding in and mixing in options within your trades it starts to become very easy to manipulate or make changes to your account and change it dynamically as you start moving forward within your trading account and making adjustments to your trades investments and so forth.
That's just a little tidbit, a little bonus for you if you’re trading options or looking to trade options in the future. Thanks for hanging out and sticking with me in this week's video lesson.
Thanks again and remember there's more to life than money or financial gain. Go out, do what you love contribute to others but most importantly live life abundantly.
I'll see you next time.