In stock trading, increasing one’s position in an asset means buying into it more. Any time a trader purchases additional shares of a security, the investor increases his or her position in the stock. This can be profitable at times, but with additional shares, extra risk can be accepted. Following is some information on what increasing position in stock trading means, and on its investing uses.
What is Increasing Position in Stock Trading?
This term simply means that a trader takes a larger position in a company by taking on more shares of stock. When a trader does this after price has dropped, she is said to be “adding to a loser,” taking on extra shares of stock that has dropped, which decreases the average cost per share. When an investor takes on additional shares of stock after it rises, the average cost per share is increased, but, if the stock continues rising, greater profits can be seen later after selling shares at even higher prices.
When to Increase Position By Adding To A Loser
When stock has dropped, taking on additional shares at lower prices means averaging down, which decreases the investor’s cost per share for a given security. This can either be worthwhile or absolutely worthless: if a stock later rises, shares can be sold for less (as the average price is lower) and still see profits, and more shares will be in possession if it rises significantly, meaning much greater returns when sold. However, if the security’s price continues dropping, which it very well could, especially after falling from the original purchase price to the lower price at which an investor increased position, then the entire investment could be a losing one.
Traders should refer to free news reports regarding stock, available for free at discount brokerage sites like E-Trade, Scottrade, TradeKing and TD Ameritrade to make predictions about whether or not price for a company’s stock will turnaround and increase after a potential increased position.
When to Increase Position on Rising Stock
Increasing position on stock that has risen since the original purchase means taking on shares at higher prices than were originally paid (or, averaging up). This means that more was spent per share on average, but when the price continues rising, averaging up can be profitable as all shares can be sold for profit later.
Again, investors should make justified predictions about the course of stock before increasing position and buying shares at higher prices. This is only a worthwhile investing tactic when value continues rising, so that all shares, including the more expensive ones, can be sold for profit later.