What is a mixed batch?
A mixed lot order is a combination of a round lot order, which is a standardized trading quantity, together with one or more odd lot orders, which refer to non-standard trading quantities.
A mixed lot is an order to trade a security for an amount that is not a round (or full) lot order amount, but is greater than the smallest round lot amount. Since this order does not fit round batch requirements, it must be a combination of a round batch order and an odd batch order. A round lot is the trading unit established on the exchange, which defines the interval in which securities should normally be traded. An odd lot is an order that falls below the lot amount of the initial round.
- A mixed lot order contains both round and odd lots.
- Commissions for mixed lots can affect a trader’s performance because they are generally higher than those for standard trades, which is called an odd lot spread.
- Mixed batch trades differ from standard trades in that they do not affect the bid or ask price and take longer to settle than standard trades.
Understanding mixed batches
Shares are normally traded in round lots of 100, which means that orders placed in these multiples are easily traded between the parties. An odd batch 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 divided into a round lot order of 400 shares (4 x 100) and an odd lot order of 25 shares.
The fees charged by brokers are normally based on the standard size for trading. For stocks, this equates to one round lot or 100 shares. Mixed lot commissions can affect a trader’s performance because they are generally higher than standard round lot trades as they also contain odd lots. This is called the odd lot spread. These orders require a round lot to be executed simultaneously. Many odd lots accumulate in round lot transactions.
Aside from commissions, there are a few other ways mixed batch trading differs from standard trading. First, they do not affect the bid or ask price. Remember, the offer is the price that a buyer will pay for a security and the sale price is what a seller will accept for the same value. Mixed lot trades also take longer to settle than standard trades, especially if round lot orders are not received. According to the SEC, standard trades take two business days to settle.
Benefits of trading round lots vs. mixed lots
Stock exchange trading systems are primarily set up to handle round lots. By submitting an operation of this type, you will appear in the offer or request the price data sent to the traders from the exchanges. But odd lot orders (a mixed lot order is divided into round lot and odd lot) are not included in these data reports. Traders often use supply or demand information to see where supply and demand are strongest in the markets.
Exchanges give mixed batch order completion preference over odd batch orders.
Additionally, round lot orders can be routed to off-exchange trading systems, where investors can get better prices or faster executions on their trades. However, exchanges give preference to the completion of mixed batch orders over odd batch orders.