We all know that penny stocks give one of the highest possible returns. But how much money do you need for getting started with the Penny stocks in the first place?
The answer to this question depends on 4 factors – Broker Requirements, Commissions & Fees, Your Financial Position, and your trading knowledge & experience.
#1 Broker requirements
If you plan on trading penny stocks, you would need to open an account with a broker. Depending on the broker you choose, the minimum deposit amount required varies.
For instance, if you open a margin account (which allows you to basically trade with the broker’s money) you would need to have a minimum balance between $500 and $2500.
Now, if you plan on becoming a pattern day trader (which is basically the name for the person who trades several times in a week for significant amounts), your minimum deposit requirement would shoot up to $25,000.
#2 Commissions and Fees
Depending on the type of broker you choose, your fees and commissions also vary. For instance, full service and discount brokers have different commission rates for trading penny stocks. These commissions can be quite expensive. So, it is best to include these commissions and expenses in addition to initial deposit necessary for trading penny stocks when planning your total cost.
So, total money for Penny Stocks = initial deposit for broker + fees and commissions.
#3 Your Financial Position
Some of you may be well off while others may be living paycheck-to-paycheck. The rule of thumb is that the money you plan to invest in penny stocks should not be got by compromising on your basic necessities. This means that you shouldn’t use your rent money for buying penny stocks!
It is also important to understand that stock market can be quite volatile. While it is possible to make money using Penny stocks, it is also equally possible that you would lose money. So, it is best to trade with the money you would be comfortable losing in case your trade is unsuccessful.
#4 Trading Knowledge & Experience
If you are a complete newbie to trading and investing, it is always best to learn the basics of stock market investing and familiarize yourself with the important terms and rules first.
In case you are an experienced investor, remember that Penny Stocks is a whole another ballgame. You would need the help of an expert in the field in order to understand the pitfalls and rewards of Penny stocks. This includes planning relevant stop-loss levels and understanding the different styles of trading like scalping and swing trades.
Remember that Penny stocks are highly volatile. They can give you double-digit returns in 2 months and also wipe off all those profits within just a week!
The amount of money necessary to invest in penny stock varies depending on your experience level as an investor. This is because experienced traders can make use of leverage and make good profits with very little initial investment. But leverage is not recommended for newbies at all, as you can suffer major losses without enough experience and knowledge about leveraged trading.
In short, you can get started with penny stocks for as low as $500, provided you have a good brokerage account, decent trading knowledge, and is not betting any money that you are not willing to lose!
Victor help individuals tap into the abundance of lifestyle freedom through Stocks, Options, and Penny Stock Trading. We provide educational training (only) to help increase profits by understanding the Fundamental and Technical Analysis of the Stock Market.