Wall Street 1929 Part 7
Three great houses on Wall Street concentrate on filling these “odd lot” demands alone. These houses are dealers to the millions, they are their key to Wall Street.
When Tom, Dick and Harry go to their brokers to buy 10-25-50 shares of Prosperity, common, their brokers notify their men on the floor, who seek out the “odd lot” specialist in these shares. These 10-25-50 share units build into hundreds, then into thousands, then into hundreds of thousands of shares. At the end of 5,000,000-share day, these isolated “odd lots,” blended in the turnover in multiples of 100, may mean 2, 000, 000 shares of that total.
That deeply is the public involved in the stock market. And the persons behind these staggering digits are laundrymen in San Francisco, mechanics in Detroit, push cart peddlers in New York, widows in Boston, and millions like them.
It is a most expensive kind of trading, this “odd lot” transaction. Since the “odd lot” houses are dealers, not brokers, being principals in the trade, they cannot charge a commission. But they levy a charge of a quarter or an eighth of a point above (when you buy) or below (when you sell) the market.
To that sum the broker tacks on a fixed charging, many of them now being committed to a minimum of from $2 to $5 a share. And if you buy on margin the bank from which the broker borrows money with which to finance the trade adds an extra one per cent of interest to the prevailing rate because of the inconvenience of handling these split lots.
With the high money rates that have been prevailing lately, these added costs have handicapped small traders at least a point before they actually started. The same deductions confront them when they sell. So they are, theoretically, spotting the market about 2 points from the very start.
Not long ago the head of one of the swankier brokerage houses, whose wealthy customers nor-mally traded in hundreds of shares, recently asked one of his clerks why he did not close out the account of Mr. X. For months X had been troubling them with ten-share orders. Such trifling orders, protested the broker, were an infernal nuisance. If X wanted to gamble, he said, let him use the penny-in-the-slot machine.
But he swiftly changed his mind when the clerk showed him that Mr. X owned twenty-five such lots, and that his total commissions during the month had cost him $1,250!
“Has he been able to survive those deductions?” I asked.
“He is a bit ahead of the game, as a matter of fact. You see, he and the rest of the public is inherently bullish. They are willing to accept these handicaps.
Source: The Outlook, 18 September 1929
Related posts:
- Wall Street 1929 Part 6
- Wall Street 1929 Part 5
- Wall Street 1929 Part 2
- Wall Street 1929 Part 12
- Wall Street 1929 Part 3
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