When Buying Stocks What Is the Minimum Number to Buy?
Investing in the stock market involves both benefits and risks. If the company you invest in is profitable, you might receive a dividend or the market price of your stock might increase, giving you capital appreciation. Stocks typically trade in multiples of 100 shares, commonly referred to as a round lot. Orders for fewer than 100 shares are called odd lots. With the advent of online trading, buying stock in odd lots is easy.
You can place an order for as little as one share of stock, but you'll need an investments brokerage account to place that order. If you need the advice of an investments professional, you can open an account with a full-service brokerage firm. You'll get greater access to a broader range of personal service, but you'll pay a higher commission for all that service. Discount brokerage firms offer many of the same services, but without the assignment of a personal broker, for a discounted commission. Online brokerage firms let you make your own investment decisions and offer the lowest commissions per trade.
In the days before electronic trading, investment brokers typically charged a higher commission rate for odd lot trading, because it was more challenging to fill an order for 27 shares than it was to fill an order for 100 shares. Online stock trading has streamlined the process so little challenge is involved in filling even small orders. Many investment brokerage companies offer a flat fee per transaction, so it doesn't cost more to buy an odd lot than a round lot. But the fewer shares of stock you buy, the higher your per share cost will be.
Some companies allow you to bypass investment brokers altogether and invest directly with the company through a direct investment program. Policies vary from company to company. Some are available only to existing shareholders, while others allow you to join their direct investment plans by making a minimum initial deposit. Direct investment plans typically allow you to make a dollar amount deposit, rather than purchasing a set number of shares of stock. Your investment is pooled with all other plan members' investments, and the money is used to buy company stock in a single purchase. The stock is then apportioned to each investor, based on her percentage of investment. With direct purchase plans, you can buy partial shares. You can even buy less than a single share.
You can enter the same types of buy orders for odd lots that are available when buying round lots. For example, you could enter a market order for 10 shares of XYZ stock, or you could enter a limit order to designate the highest price you are willing to pay for the stock. Regardless of how many shares of stock you buy, you face the same risks. While the stock market as a whole has a history of returning strong, positive results over long periods, individual stock prices can fluctuate widely. If you have to sell your stock during a period of decline, you could take a loss.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.