Definition
The term round lot refers to an order that is a multiple of the normal unit of trading for that security. A round lot for common stock is any order that is a multiple of 100 shares.
Explanation
The standard trading unit for common stock is 100 shares, while it's $100,000 for bonds. Broker commissions for trades are typically stated in terms of a standard trading unit for a security. In the case of common stock, the fee charged by a broker to execute a trade would be stated as a minimum fixed amount for a standard trading unit. In the past, traders would try to place orders for round lots. This minimized the impact the commission has on the trader's return on investment.
Also known as even lots, round lots receive standard treatment by stock exchanges too. For example, these orders will affect the displayed bid / ask prices, and they are posted to tickers. Since the trade is in a standard unit, the execution of the transaction is not delayed.
Over the years, competition for customers has lowered broker commissions and placing a round lot is less of a concern.
Related Terms
scale orders, Order Protection Rule, odd lot orders, buy minus orders, sell plus orders
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