How Much Money Do You Need To Start Trading Stocks?
Starting trading stocks can be intimidating without the right knowledge and experience. That’s why I’ve developed hands-on courses like Intro to Trading, which covers everything you need to know about how to start trading stocks the right way.
One of the biggest myths I’ve set out to bust is that you need a small fortune to get started. On the contrary, my philosophy to self-made wealth is underpinned by the idea that you can start trading stocks with smaller sums, such as $1000, and add to your account as you go.
Want to know more about how to best start trading? Register for my free Intro to Trading course for expert advice on how you can potentially make money from trading and investing in the stock market. I’ve also put together some insider tips based on my 20-plus years’ experience as a trader.
1. Trading stocks 101: Start small and grow your portfolio
While some experts cite $10,000 or higher as the magic number needed to earn genuine returns on stock investments, I’m a diehard believer in showing you how to start trading stocks the right way, which doesn’t mean large cash outlays. With a relatively small trading account and the right guidance, I’m confident you could turn even $2000 into a healthy return trading the right companies at the right time.
No, it won’t happen overnight. But there are some techniques and strategies I would use to make the most of a small amount of money in your trading account.
2. Meet the three golden rules when trading stocks
Ideally, when you start trading it’s important you are not over leveraged. For example, Amazon’s stock currently trades at around US$3000, which means your $2000 won’t go far if you just buy physical shares. However, it is possible to trade CFD shares, which can open doors to big blue chip companies with high share prices. The other option is opting for companies with share prices under $100 per share and buying physical shares.
I also believe it is important to have enough cash to diversify, which protects your portfolio from market fluctuations if you are buying a group of great quality businesses. Finally, you need to ensure your investment isn’t chewed up by trading fees so it’s important you understand what fees brokers charge.
3. Absolutely embrace compound interest when you start trading
One of the biggest concepts I like to drill into new traders and investors when they start trading stocks is the importance of embracing compound interest. Basically, this means reinvesting profits earned on any trades, as opposed to cashing it out.
While it can be tempting to withdraw your earnings, adding it onto the principal sum is one of the most efficient ways to build your returns. For every period you reinvest, the long term compounding can be a powerful earner.
4. Know which stocks to pick
The key to success when you start trading stocks is knowing which ones to pick. Without the right knowledge you’re just coasting along and hoping for the best.
Personally, I think Warren Buffett’s formula speaks for itself. I’ve based my stock picking and trading formula on the same concepts used by the business tycoon, whose US$68 billion fortune is a serious success story.
5. Stay smart and afloat
While $2000 answers the question of how much money is realistic starting capital to trade, how much money you should invest is a whole different ball game. Again, I have a few basic rules I like to lay down.
First, never jeopardise your financial future. To me, keeping things small at the start is far more effective than going big. Second, avoid trading money you can’t afford to lose, like cash you may need in the next few years. Five years is generally a good ballpark number. Third, never invest or trade so much that you feel uneasy or it keeps you up at night.