How can I trade stocks when I have limited capital?
Different markets and brokers have different minimums and requirements. For instance, on the Australian market, the smallest trade you can take in stocks is $500 and most brokers would have that minimum. You need that much money to get started but if YOU get started with $500, you’re going to have only one trade in your portfolio, which is hugely risky. What you’ve got to do if you’ve got very limited capital is you find the market that is the cheapest for you to trade with low commissions, small minimum account size, small minimum position size and trade that market.
It’s probably, depending on how much money you’re talking about, it could be the Australian market or some other market. There could also be some trading with some brokers that allow you to take partial positions or fractions of shares. In the US market they’re starting to do that now so you can investigate and find the lowest barrier to entry and the lowest capital requirement to get in. When you when you find that market, you’re going to have a system to trade it. I’d suggest you save money from your day job, paper trade your system and build your account up.
Let’s say you had a system and you really needed $10,000 to trade, that would allow you to have $2,500 trades in the Australian market but you don’t have $10,000. What do you do? Well, I’d say is you start paper trading the system and you follow it consistently with discipline like its real money. When you’ve got enough money for a couple of positions, you can start taking some real trades and then the rest paper trades, but manage the whole thing like it’s a real account. As you get some profits and some more savings, you can gradually replace some of your paper trades with real trades and build the real portfolio up so you don’t change your position size and keep the minimum until you’ve got enough money. When you’ve got enough money to trade it for real, then you can start to grow your position size. I can’t recommend any brokers but do your research and make sure that you trust the broker and he’s properly regulated. Make sure your money is held in an Australian bank and just be sensible about who you give your money to. If the broker is legit then that’s good, you can eliminate that cap but if it’s dodgy, brand new, untested or there’s complaints against it, then obviously don’t put your money with them. When you’re trading when you’ve got small capital, start trading with as much as you’ve got, but run your system properly in a paper trading account or in a spreadsheet and run it like you’ve got the minimum that you need and then gradually replace the paper trades with real trades.
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