If I pay $10 for a stock trade online, how much money should I save up before I make my first trade?

Question

Obviously more than $10! So what makes the most sense? Waiting until I have have $500, $1,000, $5,000?

Answer 1

It depends on why you are making the trade. If you spend $10 to invest $100, that purchase will have to rise much more to cover the cost than if you spent $10 to invest $1,000. What do you hope to accomplish with your stock trade? What are your targets or expectations? Buying a stock, say, at $70 when it was trading between $70-80 for months, may be the equivalent of the proverbial "buy low", but the prospects and economies of buying 2 shares or buying 20 shares or 200 shares are different if your target is $80 ("sell high" as the old line ends).

Do the math. To buy: 2 shares at $70=$140+10 commission, or $150 on the opening trade; 20 shares at $70=$1,400+10, or $1,410; and 200 shares at $70=$14,000 +10, or $14,010. To sell: 2 shares at $80+10 commission (yes, they get you both ways)=$150 (broke even); 20 shares at $80+10 commission=$1,590 ($180 profit); and 200 shares at $80+10 commission=($1,980 profit).

The smaller you put in, the less you will make (assuming that you make some, stocks do go down you know, and I had one bomb on me today, dropping almost 20 percent, wiping out a half-year's gains--while reporting a profit!), or the more your stock will have to rise to cover.

Answer 2

I agree with the other posters. When I started investing I made the mistake of buying too few shares of too many stocks. I only had $2000 to invest, and I wanted to buy 6 stocks, so I just split it up and bought 6 shares of each stock. My commission is/was $7 a trade, so it only cost me $42 in total trading costs to buy.

That was almost 10 years ago. I held those 6 stocks for years, and all of them went up--but I made almost $0 profit! When you buy thousands or even hundreds of shares of one stock, then you can make or lose a significant amount of money if the stock price moves only a few pennies. But the less you invest, the more the stock has to move before you make a profit.

I recommend keeping trading costs to 1% of your investment. So each and every trade you make needs to be for $2000 worth of a stock or more (because your total trading cost is really $20--$10 to buy and $10 to sell). That might mean 100 shares, or it might mean 10; that just depends on the stock price. Keep in mind that for stock trading to be worth it, you must outperform the market after fees and taxes. If you trading costs are higher, that just means your stock picks must appreciate that much more.

I know $2000 probably seems like a lot of money to save--and even then you can only buy one stock! That's why it's best for most investors to stick to mutual funds until they have a significant amount of money saved up (even then, most people cannot outperform the market by stock picking, especially after costs). Put your $100 or $500 in a broad based index fund. I guarantee you'll have lower costs, lower taxes, AND higher returns.

Answer 3

It depends on your investment goals and expected rate of return. Also remember that you will pay $10 to sell the asset, so your total commission is theoretically $20. Assuming you expect a 10% rate of return over the next year, you would have to invest at least $200 to cover your fees with gains.

Some brokerage accounts charge a fee if your balance is less than a certain amount (usually $1,000). You'll want to factor that in as well.

If you are investing in anything volatile (OTC, etc.) you'll want to place a limit order. That will cost you more than a market order.

Finally, if you are going to buy more than 2,500 shares, some brokerage accounts will charge an additional per share fee. This is probably not applicable to your situation unless you are buying penny stocks.

Good luck and congratulations on your decision to invest.

Answer 4

You're going at it the wrong way.

Typicaly you'll want to buy 100 shares of any stock. --then the real question is -- how much does a share cost x 100.

Are you thinking about retirement or gambling-- what type of an account will you open up? Tax free, tax deferred, or taxable.

Don't let the transaction cost ($10) entice you...as you could lose all you invested...sure you could even enjoy the profits of your sage stock pick. -- just know the $10 ain't the value...

Answer 5

All trading involves risk.Never risk more than you are prepared to loose. http://charting-the-market.com/