Round Lots

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Round Lots

Because of those expense pitfalls, many investors buy in round lots. Purchasing in round lots is similar to the process of buying beer or soda. You're certainly welcome to buy bottles or cans individually, but most people will pick up a six-pack, right? A round lot is a "six-pack" of stock, except that it's not six shares. Round lots usually trade in groups of 100.

Plain English

A round lot is a predetermined number of shares of stock that is standard for purchases and sales ”usually 100 shares.


In addition, there are a number of shares that trade in round lots of 10, which are known as cabinet stocks. Before you get too excited about cabinet stocks though, you should know that cabinet stocks trade in groups of 10 primarily because of their astronomical share prices. Prices for shares of cabinet stocks (their names are unfamiliar to the average investor) are usually in the range of tens of thousands of dollars and therefore priced out of reach of average investors. This type of stock is usually traded only between high net worth (wealthy) individuals and/or institutions.

In addition to paying fewer service charges and gaining more cost-efficiency, purchasers of round lots usually have the advantage of lower prices per share. This practice sounds a little unfair to the smaller investor because the "richer investors" get lower prices, but it makes more sense when you consider the paperwork and employee time consumed by subsequent purchases rather than one round-lot purchase.

As a smaller investor who wants to buy in round lots, you can do one of two things:

  • Keep depositing into your brokerage account until you have enough to buy the round lot.

  • Group together with other smaller investors to purchase the round lot.

Should you be fiercely independent or not have any friends , perhaps you should consider purchasing in odd lots.

Should you decide to save money in your brokerage account, be sure and ask what types of financial products are available in which you can park your money until you use it to initiate a trade. Virtually all brokerages offer money-market products such as mutual funds, with which investors can earn interest on money not currently being used. If you don't ask, you run the risk of losing possible interest payments.

TIP

Purchasing stocks in round lots through pooling its members ' funds is an advantage investment clubs offer novice investors. Investment clubs also offer opportunities for sounding out new ideas, studying and learning, and networking into the financial community.


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Stock Market Investing 10 Minute Guide
Stock Market Investing 10 Minute Guide
ISBN: 0028636104
EAN: 2147483647
Year: 2000
Pages: 130
Authors: Alex Saenz

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