How to Start Trading on the Stock Market with Low Money
You might think that investing, and trading on the stock market, requires millions of dollars to be pumped in to make any money. This is simply not the case. Fortunately, we live in an age where almost anyone can start trading in the stock market, and even if you don’t have a lot of money to invest to start with there are some ways you can start to trade, learn more, and even make money.
Stocks are shares of a company. A tiny fraction, allowing you to own a small amount of a publicly-traded company. You can make money through dividends, but also through trading as your stock values go up (or lose if they go down). There are many different strategies for trading, even for those who don’t have a lot of money to start with.
It is easy to assume that you can’t own a share in a company with a small amount of money, but some stocks are affordable, and “fractional shares” allow people to purchase a portion of a share rather than the whole thing.
Why Trading With Less Money is a Challenge
So, why do you need a different approach if you are looking to start and you don’t have a lot of money? Why is this not the same as investing with a large fund?
Trading small figures means that you don’t have the same buffer. Simply put, people who are going into investing with a huge amount of money can mitigate against these mistakes, and even swallow some losses to start with but keep trading, or wait for stocks to recover.
Trading with smaller amounts is also quite freeing in some ways, and the risks are arguably less. There are certain strategies you can take up when trading with small amounts in order to try and get ahead.
Trade Using Leverage
Trading using leverage means that you can use the options or warrants markets. These are leveraged markets that only require about 15% of the value of the trade to be provided in cash. If you were to trade directly with individual stocks and shares you might have to pay 30% of the value in cash upfront.
Effectively, you can play in a bigger league than you would be able to if you weren’t using leverage. This should be something you learn and fully understand before you get started.
Don’t Take Big Risks (Unless You’re Prepared to Lose)
With investing, it is normally a good idea for you to avoid risky stocks. You might assume that if you are getting started with less money then it is a free reign to take risks, and this is true for some investors who want to go with this high-risk (potentially high-reward) strategy.
If you take big risks and they don’t pay off then you can lose your initial capital. In some cases you can lose it altogether, so we aren’t just talking about losing a few percents.
If you need to protect the money you are investing in and intend to make it grow, even gradually and incrementally, then you should take a risk-averse strategy. Traders with smaller starting accounts should work out the risk to reward ratio they are happy with.
One tip that a lot of people stick to is a one percent risk rule. This gives the same kind of buffer you might get if you were trading with larger amounts, but you certainly need to be patient.
Use a Trading Account Designed for Lower Amounts
There is no point in pretending that you are going to be shifting huge amounts of money if you simply are not. So, it is a good idea to see what trading platforms can allow you to trade low amounts and not have to worry about the commissions. Some offer either extremely small commission fees and some will even promise no fees until your account reaches a certain cash value.
What’s more, it is a good idea to get a trading account that has an app with it and allows you to track your investments and make changes online.
Robinhood is an app that charges extremely low commissions. It is designed for people who are just getting started, too, so it isn’t too intimidating for beginners.
Employer-Sponsored Retirement Plans
This is probably the place to start if you haven’t already done so. It’s a bit different from trading and investing on your own as you won’t be choosing where the money goes. However, there are retirement plans available that can be beneficial for tax reasons, too, making them a real no-brainer if you are looking to invest a little bit of money each month.
You can start with a 1% contribution, and you probably won’t even notice it going each month. Plus, your tax deduction can make this even more financially beneficial.
You won’t be able to see the benefits for a number of years, but this is often a small price to pay, and it is always a good idea to have a plan for retirement.
This hands-off approach is popular among a lot of people. If you want to, you can contribute even more money to the fund so that you have more to draw from in the future.
Use a Mutual Fund and Save Monthly
If you don’t have a large sum of money to invest from the outset, why not work out how much you can put into a plan each and every month and invest these in a mutual fund.
Mutual funds are another area of the industry that has been revolutionized by tech advancements.
These funds are managed by third parties and come with different risk levels attached to them. You can choose to invest in the mutual fund, and you can put more into the fund each and every month. This is the equivalent of having a financial adviser putting your money in a specific fund so you don’t have to make the choices yourself.
Even if you don’t have a lot of money to put into the fund, saving monthly can be a great way to build up your portfolio over time. What’s more, if you invest in a good fund, the compound interest over the months and years can really start to build up. If you are able to start earlier, this puts you in an even better position for the future. Investing with low money is almost always a good idea, but the earlier in life you start, the more chance of compound interest building up.
There are a number of different strategies to make money. You can learn how to start a business, improve your career, or, an option for everyone; invest in the stock market.
The truth is that it is a good idea to get started in whichever way you see fit! You will learn more about investing by getting started than you will just by reading, and you can even use “mock” accounts with imaginary sums of money so that you can fully understand investing and learn how to pick the right stocks, rather than risk your own cash right from the start.
Trading in the stock market can either be hands-off, or very much hands-on, depending on what involvement you want to have. You can learn to be the next Warren Buffett or you can just invest in a mutual fund or employer-sponsored plan to build up money for the future.