The question is not how much money do you need, it is how much money should you start with?
Well, the general rule is that you should only risk what you are willing to lose. The stock market is not a get-rich-quick game and losses will happen. That being said, check what your broker’s minimum starting balance is, (if it has one), and think about the risk/reward ratio.
According to Investopedia, “Many discount brokers typically offer $0 to $500 account minimums…”
You can check with your broker to find out what the minimum account balance is. Some popular brokers are:
The Risk/Reward Ratio
Let’s say you have an account of 1,000 dollars. If stock A is 800 dollars, and you want to buy it, you will only be able to buy 1 share. But if you have 10,000 dollars, you will be able to buy 12 shares.
With only 1 share of a stock, the reward will be 1x the amount the stock increases or decreases. So the amount of money put into the stock is proportional to the amount you make from the stock.
Also Read – How to Use Candlesticks and Why You Should
It is also unwise to dump all of your money into one stock, as diversification is usually the best way to go. Diversification is a risk-management strategy that involves having a mix, or having multiple stocks in your portfolio. This may minimize your risk of losing all of your money because if you own 3 stocks and one of them goes down, it is much better than your whole portfolio in only 1 stock and only it going down.
There is also something called fractional shares. Fractional shares are a way investors and traders can buy part of a stock ie. less than one share (0.1, 0.5, etc….). Fractional Shares give the buyer an opportunity to own part of a stock even if they have insufficient funds to own the whole share, or if they don’t want to own the whole share.
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