Legal Definitions - round lot

A round lot refers to a standard trading unit for financial securities, most commonly 100 shares of stock. It represents the typical quantity in which securities are bought or sold on major exchanges, facilitating efficient trading and often resulting in lower transaction costs per share compared to trading in smaller, non-standard quantities (known as "odd lots"). While 100 shares is the most common definition for stocks, the specific size of a round lot can vary for other types of securities, such as bonds or options, depending on market conventions.

Here are some examples to illustrate the concept of a round lot:

• Individual Stock Purchase: Imagine an individual investor, Sarah, decides to invest in a publicly traded technology company. She places an order with her brokerage to buy 300 shares of the company's stock. This transaction would be considered three round lots (3 x 100 shares). By purchasing in multiples of 100, Sarah is trading in standard units, which is generally more straightforward and cost-effective than buying, for instance, 275 shares.

• Mutual Fund Portfolio Adjustment: A large mutual fund manager is rebalancing their portfolio and needs to increase their holding in a particular energy sector company. They instruct their traders to acquire 1,000 shares of that company's stock. This purchase represents ten round lots (10 x 100 shares). Trading in round lots allows the mutual fund to execute large orders efficiently and receive standard pricing from market makers, benefiting the fund's investors.

• Bond Market Transaction: While 100 shares is standard for stocks, the concept of a round lot also applies to other securities. For corporate bonds, a round lot might be defined as a face value of $100,000 or 100 bonds. If an institutional investor, like a pension fund, decides to sell 500 corporate bonds, assuming each bond has a face value of $1,000 and the standard round lot is 100 bonds, they would be selling five round lots of bonds. This demonstrates that the principle of a standard trading unit extends beyond just equities.