Below, I will give an opinion to deal with that question. But first I must make the comment that, other than the requirements set by the brokerage company of choice to open an account, which in some cases is nil, there is no specific answer to the question “How much money do I need to start?”.

In reality, it only takes sufficient to buy the stocks for the first trade plus the added stockbroker’s commission. However, on a practical basis, having only enough to buy one stock won’t take you very far for very long, even if that first purchase makes a handsome profit and enables you to buy two stocks next time. And on the other hand, the first stock may not be such a great success or it may turn out to be a loser.

Well, how much then?
However, it is a frequently asked question, especially when start-up capital is limited and when a person is enthusiastic and eager to start to trade. So, from that point of view, when capital is limited and a person is just wishing to start, I will answer by giving an opinion of what I would do — with the added preliminary comments and cautions that we are talking about trading, not investing (we’ve discussed the difference elsewhere on this stock market basics site on several occasions). Trading in most cases is an approach to buying stocks and holding them for relatively short periods of time, maybe a few months, and making a profit with them as quickly as possible through a rise in their stock market price.

Caution
It should be noted that trading in the stock market, also called speculating, is accompanied  by a lot of risks related to events that cannot be foreseen and can very quickly deplete capital — even when the stock market basics guidelines are followed.

For instance, who could have foreseen that a week or so ago that Japan would suffer an earthquake, followed by a tsunami, followed by a nuclear plant meltdown? Such instances and others, such as the political unrest in the middle east, not totally anticipated in the first of the several occasions, do have an affect on the market and some stocks take a big hit and a stockholder suffers a loss — even though their stocks may have had great prospects when chosen.

Yes, but how much?
Others may have different opinions, but for my own case I would not be afraid to start stock market trading with one thousand dollars or less — and I would be prepared to buy just 100 shares of just one $10 stock to start. A lot of quality high-priced  stocks would not be available, so to obey my own guideline of “no stocks under $5″, would require a search for candidates between 5 and $10. I would definitely consider also an options position. I have written quite a lot about options on this website, my views are given in 6 articles that can be found by scrolling down to the category sub-heading “Stock Options” that can be accessed at List of Topics.

But a larger stake provides so many more opportunities
Obviously, starting up with more cash provides many more trading opportunities. Based on each trading position being bought and sold in about a 3 or 4 month period, starting with just one stock position provides only 3 or 4 trades in a year — and there will be some losses, not all trades will be profitable. Compare that with an 8 or10-stocks portfolio, turning over at that same rate of about 3 or 4 month would provide 30 or 40 trading opportunities, again there will certainly be some losses, there always are.

$10k, $5k, $1k, the trading guidelines are the same Whether starting with $10, 000, $5,000, or $1,000, the same trading guidelines apply and we will discuss those in the next post, tomorrow, when we can begin our new paper trading series in which the plan is to run a 5 or $10,000 starting portfolio and a $1,000 portfolio side by side, in real time, picking current stocks that, careful as we are, may not turn out to be winners, but should teach us something.

A new Series:   The need to learn stock market basics trading principles
The purpose of this paper trading approach is to be able to present and illustrate stock market basics principles by using real stocks and real data in real time — we will pick the stocks and see how they trade in the marketplace as time passes. Although they will be simulated trades, we will follow the “house” guidelines. We will make our buy and sell decisions and monitor the stocks as if they were real trades  and in this way, according to the objectives of Stock Market Basics Guide, anyone who should follow along will be able to make their own judgements, learn and heed the positive things, and discount what fails.

Afterthought
Our two previous single-stock paper trades, for AGCO and ASYS, on separate occasions late last year, were very successful and are summarized at ASYS, How did we do? and AGCO Update and those articles are preceded by the earlier related articles on this website that tracked the progress of the simulated trades as they progressed from time to time.

Related posts:

  1. About Being Successful in the Stock Market — Show Me the Money!
  2. Buying stocks — But First, Before We Start
  3. Still Waiting on the Sidelines to Start Paper-Trading Portfolio Number 3
  4. Yes, Indexes Signal It’s Time for Buying Stocks
  5. At Last, Charts Signal Time for Buying Stocks? Maybe!
  6. September 19th: Time to Review Our New Paper-Trading Portfolio and the Stock We Are Buying
  7. Opportunities for the Stock Trader — Let the Charts Be Your Guide

Filed under: Stock Market Basics

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