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What is a Material Amount?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 19 August 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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A material amount is the degree of movement that is exhibited by the price of a given security, with that movement either confirming or refuting the projections for that security’s performance within a given time frame. In situations where the movement confirms the projection, the trader continues pursuing the strategy developed as the result of those projections. Should the material amount not be in harmony with those predictions, the trader will take steps to reassess that strategy in an effort to prevent or at least minimize any losses resulting from the inaccurate projection.

There is no established material amount that serves as a benchmark in each situation. Investors must determine what would be considered an acceptable degree of variance in the movement of the security price with each new investment. As a result, what would be considered a favorable material amount for one investment may be considered insufficient for another trade. Identifying this acceptable movement range makes it easier to determine what action to take as prices fluctuate a little throughout the trading day, and take immediate action should those prices move outside those perimeters.

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Typically, the range of a material amount must be enough to be considered noteworthy. Some slight movement throughout the trading day would probably not be of much interest to company shareholders and as such would probably not be shared in any meeting with investors. Only if the material amount shifts enough to demonstrate that the share prices are definitely moving according to projections, or that prices are moving in a direction completely different from those predictions, will any type of announcement take place.

When the material amount confirms that the predictions on stock movements and prices are accurate, this may serve as grounds for buying or selling more shares of that stock than originally planned. At the same time, if the movement is not in keeping with the projections, investors may protect their interests by initiating a stop-loss order, which effectively limits the amount of money they can lose if the share price continues in that opposing direction. Since accuracy in projecting price movements is key to this process, many investors and traders make use of technical analysis as well as their own instincts to determine what is considered a material amount. This in turn makes it easier to determine what must be done when that movement does not coincide with the performance originally associated with the stock option.

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