How To Start Trading in the Stock Market with $1,000

How to Start Trading in the Stock Market with $1,000 

Note: information from this post is only a guideline on how to trade with accounts that are funded with $1,000. All decisions regarding investments are to made by the investor and this blog post can not be regarded as investment advice in any way. 

Introduction 

New to investing in the stock market? Only have a limited amount of funds to invest with? No need to worry, there is still a way for you to enter the stock market and be able to make gains with only $1,000 in your account. However, be weary that it is difficult to gain substantial gains from a portfolio that has invested only $1,000. This is due to the following reasons: 

• It is difficult to diversify your portfolio (buy more than 1 type of stock) with little funds, because each stock trade has a commission fee and the trade must be large enough that you are able to at least break–even on commission. You may even be forced to put all of your funds in one stock to make a noticeable return. 

• Most stable stocks (listed in the S&P 500 or Dow Jones 30 for example) are expensive and it could take months or even years before you break–even or see a substantial return unless you buy more of that specific stock 

• While there are stocks that cost less than a dollar (penny stocks) and are easier to make profits from if you buy enough shares, they are riskier because most of these companies are speculative. This can result in losses.

Adding more funds to your account either one-time or on a monthly basis can help improve your odds on making a substantial return. 

Plan Your Moves/Goals 

When investing it is important to ask yourself questions on what your final goal is on the investment. The following questions should be considered: 

• How long am I planning to hold this investment? 

• How much am I willing to lose on this investment? 

• My investment is making a profit, when should I sell? 

• Did I do my research on this company? 

• How much of my money should I put into this investment? 

Having a backup plan in case the investment does not go in the direction you wanted can help you manage your portfolio more properly and may even prevent you from losing too much on a bad investment. 

Buy More of a Stock per Trade 

Reminder, every time you make a trade, you a pay a commission fee to your broker.  With this knowledge, you need to be aware of how much stock you are purchasing at a specific price because the stock must rise a certain amount to break–even on your investment. 

Take for example a stock that is worth $1 per share.  Let’s say you only buy 1 share. Why is this considered a bad investment? 

• The stock itself is worth only $1 and you paid commission to buy that stock, the commission itself takes up a large part of your investment. In other words, you paid commission for a stock that is only worth $1 

• You will have to pay commission to sell your stock.

• Taking this into consideration, your stock will have to rise considerably for your investment to break even on commission! 

• Because stocks that are worth $1 typically changes a few cents on a regular trading day, you may have to hold your investment for years to make a profit.

Now let’s say you buy the same $1 stock, only this time you buy 400 shares. Why is this a better investment than the previous one? 

• The entire investment is worth $400 + the commission fee. The commission itself only takes up a small part of the investment. In other words, you paid much less per share than for the one stock bought in the previous scenario 

• The stock will only have to rise a few cents for your investment to break even on commission and make a profit
  

• Again, since stocks that are worth $1 usually change a few cents per day, this investment makes more sense because not only will you be able to break even more easily on commission, you will also be able to make a profit. You also may not need to hold the investment as long to realize a profit 

As you can see, buying more stock is beneficial for the chance to earn returns while also breaking even on commission. 

Consider Trading Options

Opposed to stocks, options are an alternative way to make money on investments. Click here to learn more about options. Options can net larger returns compared to stocks but may also lead to losses if the investment goes poorly. Also, options have an expiration date that deem them worthless upon passing of that date. If you are willing to take the risk of making larger profits at the expense of potential making  losses, consider options as a means of investing. (Note: Options may not be available to purchases on your account depending on the circumstances) 

Preview Your Orders 

It is important to preview your orders to understand how much the trade is going to cost. You don’t want to find out after the fact that the trade you made is not up to your liking. Review the data such as the total cost, commissions, how much the stock needs to rise to break-even on the investment, or how much profit/losses you will make before confirming the trade. RWIBrokers.com profides the possibility to preview your trades before sending them to the markets.