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I am thinking about diversifying my portfolio by adding 10 new positions. Due to limited funds, I am planning on buying less than 100 shares each time. It is my understanding that since I am buying less than 100 shares my order will not be sent to a stock exchange but an Electronic Communications Network (ECN) instead. I am concerned that when I buy (or sell) less than 100 shares I will not get filled at such a good price. Is that true?

I live in the United States.

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In the past 20 years I have traded odd and mixed lots many, many times and I have never not had an order filled in toto if NBBO size was larger than my order. It may be because my broker offers Smart Routing but I can't state that this is true across the board. Here's the information that they provide for traders:

An odd lot is a number of shares less than 100 (1-99) A "Round Lot" is 100 shares of stock

An order for a number of shares greater than 100, but not a multiple of 100 (i.e. 142, 373, 1,948, etc) is a "Mixed Lot" (AKA PRL, or partial round lot, order)

Odd-Lot orders are not posted to the bid/ask data on exchanges

Odd-Lot orders are taken into the order book at the exchange they are routed to. When the exchange is able to match an order from the other side of the book with the odd-lot, it will be filled. This could lead to delay on execution of an odd-lot.

There are numerous guidelines for the routing of odd-lot orders:

Odd-Lot orders to initiate positions will not be routed to primary exchanges; Odd-Lot orders can be routed to primary exchanges, but only if the order in question is to close out a preexisting position; IB will not direct-route odd-lot orders which initiate positions to primary exchanges, therefore these type of orders should be Smart Routed so that IB's routing system can send the order to an ECN for execution. The exception is that odd lots can be routed to NYSE/ARCA/AMEX, but only as part of a basket order or as a market-on-close (MOC) order.

A mixed lot or PRL (i.e. 257 shares) direct-routed to NYSE/AMEX will be submitted in whole to the exchange (applies to both market and limit orders). If the order is direct-routed to NYSE/ARCA, only the round lot portion of the order will be submitted and, if it is executed, the IB system will cancel the remaining odd-lot portion of the order. If the order is routed via IB Smart Routing, all market centers are eligible to receive the order according to the Smart Routing logic (including NYSE/ARCA, but only for the round lot portion of the order).

IB will not route odd-lot orders for HOLDRS. The odd-lot portion of a PRL order for HOLDRS will be rejected by the IB system after the round lot portion of the order is executed.

Individual exchanges may impose certain restrictions on odd lot orders, in addition to any of the restrictions mentioned above

As you can see, there's no one size fits all answer, well, at least at my broker.

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I believe all orders are ECN, not only those that are <100 shares. You should not have any problems when trading US stocks that have high liquidity. ie : Apple, Google, etc.

You might get below average prices if you are selling or buying stocks that have a wide spread between the bid/ask price. In order to reduce this risk you can do a limit order on your trade by specifying a minimum price to sell or a maximum price to buy.

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It shouldn't matter, your order will get executed at the national best bid/offer

What is the National Best Bid and Offer (NBBO)?

The National Best Bid and Offer (NBBO) is a Securities Exchange Commission (SEC) regulation requiring brokers to trade at the best available (lowest) ask price and the best available (highest) bid price when buying and selling securities for customers. The National Best Bid and Offer is the bid or ask price that the average customer will see. The Securities and Exchange Commission’s Regulation NMS requires that brokers guarantee their customers this price.

https://www.investopedia.com/terms/n/nbbo.asp

Edit:

As base64 points out, NBBO doesn't apply to odd lots (less than 100 shares):

How does odd lot trading affect retail traders? Brokers are required, under a variety of regulations but most notably Regulation NMS, to execute your order at the national best bid or offer (NBBO). The NBBO is the best available (lowest) ask price when you are buying an exchange-listed product, and best available (highest) bid price when you're selling. The catch? Odd lot trades are not reported on most public data feeds, so traders do not have a complete picture of the current liquidity, and are not covered by regulations that require the trade to be executed at the NBBO--but worse, they don't know if they are getting the best price or not.

https://www.investopedia.com/odd-lot-trading-on-the-rise-4774753

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  • "odd lots aren’t required to be included in the National Best Bid and Offer (NBBO)" nasdaq.com/articles/what-happens-in-an-odd-lot-world-2019-06-20
    – base64
    Jun 19 '20 at 2:49
  • Interesting. The way I read it, odd lots aren't included in the computation of the NBBO but that doesn't mean they won't be executed at the prevailing NBBO, no?
    – 0xFEE1DEAD
    Jun 19 '20 at 2:55
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    BBO <> NBBO. If you submit a 1 share Market Order to your broker, the broker is under no obligation to find the Odd Lot BBO quotes of all exchange and ECN in the country, then match with the best one.
    – base64
    Jun 19 '20 at 2:59
  • I stand corrected
    – 0xFEE1DEAD
    Jun 19 '20 at 3:03

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