Position Sizing Questions for Mr. Now

[SlowStroke]

First off, thank you for your Trading 101: Position Sizing post, I found it very helpful. But I have a question about one of the examples.

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Your current account value is $45,000. One percent is $450. $450/$6 = 75 shares. For maintaining 1% risk, you can buy 75 shares of XYZ @ $80 with a protective stop loss at $74. You have approximately 1% of the portfolio at risk on this play.

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The above example describes my situation exactly.

But, how (or where) can I buy 75 shares of stock? Everyplace I've looked requires a minimum purchase of 100 shares.

Is investing $450 in a call option on the underlying stock a reasonable alternative?

[Brainwalter]

I use scottrade and have bought less than 100 shares of lots of stocks.

[Your Mom]

Ameritrade allows it as well.

[moneyloser]

[ QUOTE ]
Ameritrade allows it as well.

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I have bought less than 100 shares a lot of time with
Ameritrade. Unfortunately for me, TD waterhouse bought their canadian portal. So I was wondering if etrade allows it as well?

[Mr. Now]

Until you master 'long stock no margin' it may may well be best to wait on the 'fun' you can have with options.

'long stock no margin' is a safe place to found out just how dangerous trading can be-- and is, if you are unprepared and unready to manage risk.

The most important thing to understand is your risk. One good measure of one form of risk is the total portfolio risk as defined by stops on each position.

You simply add up all the possible losses (defined by stops) plus a reasonable slippage factor and divide that by period-start equity. A good period to use 1/12 of a year: "monthly".

Anything over 4-5 percent risk (before the slippage factor) is generally more risk than is easily managed.

Usually, you want to make sure you also have a rule that says if you lose more than X% in a given month, you take immediate action to reduce risk.

If you lose more than Y% in a month, where Y% is a scary number like over 11%, then in that case you stop trading for Z days, weeks or months. You may also have a rule that says you must get flat (no positions) AND not trade for Z days or weeks, if you hit that Y%.

Self-preservation is the first law of nature.

because ANTHING CAN HAPPEN, risking over 5% in any one trading day may very well be a form of:

"wagering money at unfavorable odds."

The slang term for this is situation is "gambling".

Most e-brokers allow small lots under 100 shares. Interestingly, some market technicians notice that the small lot traders are usually wrong, and use stats on the small-lots to determine how to do the exact opposite, which is typically a correct play more than 50% of the time.