How to start trading with 500
dollars?
The other day, I received a question
on one of my videos.
In a nutshell, the question was,
Markus, "What would you do
if you started trading with the $500
account?" That's a great question
and I promise that I will answer
it in this video.
So here we go.
How to start trading with
500 dollars? Now, before I answer
the question, let's do some
simple math.
You see, when I use the PowerX
Optimizer, I am looking for stocks
that had at least 60%
return on investment over the past
year. Now, making 60%
in the stock market consistently
is a great accomplishment.
Yes, of course, every now and then
you will have a trade that doubles,
triples or maybe even quadruples
your money.
But he will also have some losing
trade. So 60%
per year is an excellent result
if you can make it consistently.
Now, for this video, I want to
be even more optimistic.
Let's say you can double that
and that you can achieve 120%
per year.
Now, based on a $500
account, you would make $600.
Yeah, you would grow your account
from $500
to $1,100.
Or, if you look at it in a different
way, you would make $50
per month because that's
$600 per year divided by
12 months.
Now, I don't know about you,
but $50 per
month doesn't sound very exciting.
You would make more money when you
drive one day per month for
Uber.
But let's dive a little bit deeper.
So what can you invest
in with $500?
Now, most brokers will allow you
to open an account with $500
to trade stocks and options.
Oh yeah, of course, you can also
trade Forex, but when trading
Forex you're trading against the
house, so you're almost guaranteed
to lose money.
And I'll do another video on that
topic.
But let's take a look at stocks
first. The so-called "blue
chips" are the stocks in the Dow
Jones. And right now, the
stock in the Dow costs you between
$35 for Pfizer and
$320 for Apple.
Now, you should never put all your
eggs in one basket.
I recommend that you diversify and
have at least five different
positions in your account.
Now this means that you divide your
$500 into five equal
parts.
So this means that you can allocate
$100 per stock.
Now only 10 of the 30 stocks
in the Dow are trading below $100.
So you could only trade these
stocks. Now, of course,
you can look at the Nasdaq or the
S&P 500 for additional
stocks. But my point is,
you're restricting the stocks that
you can invest in simply because
you don't have enough capital.
And for me, that's
a significant handicap.
It's like going to the grocery
store and trying to buy food for
a week for $20.
I mean, yes, it is possible,
but not easy.
Same here when you're trading
stocks. Now, before we move on,
is this making sense thus far?
If it does click on like so
that I know if I'm going too fast
or too slow, just click like
right now.
Okay, so if trading stocks with
$500 is not possible,
or very difficult,
what about options?
Can you start trading options
with $500?
Now options sound like a great
alternative for people with smaller
accounts. After all, most
options are priced between $1
and $2.
The problem, options
come in 100 packs.
So if one option costs one
dollar, you actually have to bring
$100 to the table.
So you're running into the same
problem as with stocks.
In order to diversify your $500 into
multiple positions, you
need to trade options that cost
less than $1.
And here's the problem.
When an option costs less than $1,
it is usually "out of the money."
This means that the probability of
making money with this option is
rather small.
Let me show you an example.
Let's say you want to trade an
option on Disney, and right
now I say I'm recording this Disney
is trading at $135.
And let's say you expect it to go
up to $150.
Now you could buy the 130 call
option, and this trade would have a
42% chance of success.
The problem, the price of
the option is between
$8.95 and $9.10.
And since they come in hundred packs
you would have to invest
$895 to $910,
but you only have $500 so
this option obviously
doesn't work.
Now most people then look for a
cheaper option, so
you could look at the
155 call option.
It only costs between 65 cents
and 70 cents so you only need
$60 to $70 to buy this
option and with a $500
account, that's possible.
But take a look at the profit
probability.
It went down from 42%
to only 7.7%.
So, yes, the option
is cheaper and more affordable, but
the chances of making money with the
option are slim to
none.
Now, is this helpful thus far?
Because if it is, click on like
so that I know which videos you like
best and I promise that I will make
more of those.
So back to our topic.
What is the solution?
How to start trading with $500?
Now, as you can see,
even though technically you can
open an account with $500,
the odds of making money with such a
small amount are stacked against
you.
Number one, you would only make
$50 per month, which
for me doesn't make sense.
Number two, you can only trade
very few stocks since you need to
buy cheap stocks.
So your trade selection becomes
extremely difficult.
And number three, you can only
trade cheap options, and
there is a reason why they are
cheap. The probability of
making money with cheap options
is slim to none.
So for these reasons, most people
who start with $500 will
lose it all within a few weeks
or a few months.
Now I know this
is not what you want to hear, but
try to save up some more money
before you start trading.
Think about it as starting a
business.
Yes, you might be able to start a
business with $500, but
the chances of making any money
with the business are small.
Now, the good news, you can
still learn how to trade and
practice on a simulator
until you have more money available
for trading. So, take your
time to master trading on a practice
account until you have enough money
to start trading and your chances
of making it as a trader will be
much, much higher.
By the way, I made a video,
"How much money do you need to
start trading?" And I'll link to it
somewhere right here and
also in the description.
Take a look. I'm sure you're going
to love it.
I'll talk to you soon.