> You can't just go get 2 shares of SPY off the lits, so where dyou think those are coming from?
Why can't you just get 2 shares on an exchange?
Why can't you just get 2 shares on an exchange?
This is pretty much just a legacy thing, but so many technical systems have this assumption built in that while odd-lot trading (trades not in the round lot size) has become a little more common on the exchanges, it’s still treated weirdly by the various systems involved.
But also, it’s better for you as a retail investor, to get them from a middleman, because they will generally give you a better price than the exchange. They will give you a better price because retail traders tend on average to be worse at trading than the overall market. You should take advantage of that, regardless of your actual ability level.
For stocks like SPY (those over $500 per share!), the vast majority of orders are odd lots.
This article is many years old and already has data strongly in that direction: https://www.nasdaq.com/articles/odd-facts-about-odd-lots-202...
And even if they could "just" do so, internal matching typically provides better price improvement on the NBBO than even the best execution you could get off the lits.
Edit: But yes TBC, you're correct that odd lot trades aren't unusual. But you're seeing trades there by actual market participants, not retail orders. They're not just trying to get those 2 shares, there's a broader strategy and they're aware of all the above nitty gritty.
In example 3, the NBBO for stock ABC is 495--500, but there is also an odd lot offer for 497 on exchange. If a Robinhood customer sends a market buy order, then Citadel is allowed to fill it for 499.999 even though it's better to send to the exchange. (And if they then pick up the odd lot themselves, it's easy arbitrage.)
By the way, while you're correct about some of your claims, odd lot executions definitely have to occur within the NBBO. (How could it be otherwise?) Otherwise, in the example above, Citadel would give an even worse price!
Round lots are excluded from the NBBO so that the NBBO can't be as easily influenced by quantities of shares that don't represent any material price signal. 1 share of practically anything but BRK class A represents ~nothing. Less than a round lot on a price level is basically no liquidity available at that level.
Even if there wasn't, I guess at least half the trading on stocks is through CFDs and not cash, so lots aren't even a thing for most investors.