When investors refer to small lots of stock, they generally mean something less than 100 shares and, often, even smaller amounts. If you do not have much money to invest, you might consider purchasing small lots (even fractional shares of stock) on a regular basis with a discount brokerage that specializes in the practice. When you do this, you employ dollar-cost averaging. This strategy refers to investing a lump sum of money on a fixed schedule and buying more shares when the stock price is low and fewer shares when it is high.
1. Open an account with a brokerage that specializes in transacting small lots or fractional shares of stock and will allow you to buy small lots and dollar-cost average into their positions. Generally, on such small buys, the commissions charged by larger firms eat into the amount you have to invest, leaving little leftover, compared to a firm with a less expensive commission structure.
2. Fund your account. Regardless of the brokerage you use, you should have the same options for putting cash in your account. Common methods include automatic bank drafts or sending a check to a physical address.
3. Determine an investment schedule. While you can change your strategy at any time, it makes sense to formulate a plan and then attempt to stick to it. For instance, you could decide to invest $100 on the 15th of every month and divide between your two favorite stocks.
- Typically, firms that specialize in executing small lot trades place orders on a particular day of the week. Unlike a real-time trade, which costs more to transact, you will not be able to see your trade go off instantaneously intraday. Instead, you will receive a confirmation at the end of the trading day, noting the number of shares purchased and the price paid.
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