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In Finance, what are Effective Sales?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 April 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Effective sales are sales of securities in odd lots that are based on the most recent pricing for round lot investments. Round lots, which are lots of 100 shares of stock, are the most common type of lot traded on various markets. This current round lot price provides the basis for determining the price for any odd lots, or lots that are less than 100 shares, for the same security. This difference between the current round lot price and the odd lot price is known as the odd lot differential. An effective sale takes place when an investor purchases an odd lot that is priced based on the current price of a round lot.

The use of the most recent round lot price to determine a proper price for an odd lot is sometimes based on breaking down the round lot price into a price per unit, then applying that unit price to each security contained in the odd lot. For example, if the round lot price per share for the security comes to $10 in US Dollars (USD), that same price is applied to each share in an odd lot. This means that if there are sixty-five shares in the odd lot, the investor will pay a total of $650 USD for the lot.

Various types of odd lot orders can be structured using the concept of effective sales. For odd lot market orders, an effective sale is the trade that takes place immediately after a broker receives an odd lot order. When it comes to an odd-lot limit order, the effective sale is the first trade that is based on the odd lot differential.

Investors sometimes look for effective sales as a means of securing any available shares of a stock they desire to own. Purchasing odd lots is often a good way to secure additional shares, since some investors prefer to deal with round lots only. This means that an investor who wants to secure shares of XYZ Company and does not mind purchasing a few shares here and a few shares there can easily amass a significant interest in that company while drawing relatively little attention to his or her activities.

Since odd lots are traded on most markets, investors can often find opportunities of this nature, and make use of effective sales as a means of increasing the value of their investment portfolios. If a broker is aware that a client is open to the purchase of odd lots, he or she can often find investments that are of interest to that investor. Since lots of this type appear on a more or less regular basis, there is always the potential for engaging in effective sales and securing a few additional shares of a favored stock.

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