How Many Shares to Buy

Before you enter the market you will need to decide not only what to buy and when to buy it, buy how much to buy.   How many shares of stocks should you buy to limit your risk?  Here are some things to consider when you decide that.

1.       How much capital do you Have?

How much money do you have in your trading account?  This is the most important thing to consider when you are deciding how much stock to buy.   You don’t want to have a large portion of your account in 1 trade because if you lose money on that 1 trade it could be devastating to your account.

2.       How Much are you willing to risk?

You want to only risk a small amount of your capital on any 1 trade.   Once you figure out how much you are comfortable risking you must factor it into your account. For instance if you only want to risk 2% of your account don’t put 10% of your account into any 1 trade unless you plan on cutting your losses short once it you lose 2% of your account.

3.       Are You Selling Calls on the Stock?

When you sell covered calls on a stock you have to sell those calls in multiples of 100.  That is something you want to keep in mind.  So if you want to place a covered calls trade don’t buy 90 shares of a stock because you will not be able to sell anything.  However this should not override the first two suggestions, you still have to keep in mind how much you are willing to risk on that 1 trade.

Most people do not think about how much they should put into any 1 share of stock.  This often works against them in a big way. 

For more information on how much to buy visit http://www.stocks-simplified.com/position_sizing.html