One of the most worrying questions for individuals wishing to invest in the stock market for the first time concerns the budget to be allocated to this investment. It is true that the answer to this question is essential, as this decision should not be taken lightly. On the other hand, it is necessary to take into account different criteria, such as brokerage fees, in order to have a clear view of the possibilities offered by our capital.
Some prudential measures
First of all, it’s a good idea to remember certain Forex risks. As with all financial investments, forex speculation presents some risks that should be taken into account. On the one hand, the money you put into your trading account must be fully dedicated to this activity, and on the other hand, you must make sure that you never invest money that you might need for your daily expenses.
However, it is not advisable to invest too much small sums, as this could penalize you during your trading career. Indeed, if the amount of your first deposit is very low, it will not allow you to compensate for possible losses due to mistakes often made by beginners during their first investments.
Large or small capital?
It seems clear that the future return on your stock market investments depends largely on the amount you plan to spend initially. Deposits that are too small may prevent you from making profitable transactions. Although no maximum amount is recommended, it is strongly recommended that you start with a sufficient initial deposit. This is due to the fact that small capital can be lost more quickly in the event of a period of crisis in the markets, and that, without other funds to recover the lost sum, the shareholder’s career as a speculator is brutally interrupted.
Not to mention that it is necessary to take into account here the brokerage fees, which are necessary and invoiced by all intermediaries.
Take into account brokerage costs:
Whenever individuals place stock exchange orders, the intermediary, i.e. the bank or broker, is remunerated by charging brokerage fees. Typically, these fees range from 0.50 to 4% of the transaction amount, the minimum amount of which must be €10. It is worth mentioning here that the fact of buying and then selling a security is equivalent to carrying out two operations, each of which is subject to the same percentage.
For small investments it is necessary to earn a significant percentage to compensate for the realized loss due to brokerage costs. For large investments, brokerage fees can more than offset these costs while leaving an interesting profit margin.
How much should I invest in order to start trading on the stock exchange?
Generally, professional traders advise beginners not to invest less than €2,000 to start investing in the stock market. Indeed, this sum is the minimum necessary to decide on certain assets. However, it does not allow a homogeneous diversification of a stock exchange portfolio. Therefore, it is necessary to resort to more significant and riskier leverage.
In order to have the most possibilities when diversifying your investment portfolio as much as possible, it is preferable to invest between €5,000 and €7,000 and even €10,000 if you wish to make investments in different international stock exchange locations.
Of course, if you do not have this amount, you should not, above all, go into debt or use money that would be useful to you for trading. One of the means of making profits from smaller sums concerns the purchase of UCITS invested in shares. Thanks to this method, you can diversify your investments by subscribing to only one and the same investment product. Of course, the performance of this type of product is not as important as in the context of diversified investments to which you will have access with higher initial capital.
Possibilities according to the level of investment
Naturally, the amount you invest at the beginning will be more or less decisive for your future investments and their success. Here are some methods to apply based on your initial capital.
Less than 250 €: This deposit is usually the minimum amount required by brokers. Choose the scalping technique which, although risky, is the best way to increase your capital. Swing trading is also a technique adapted to small accounts.
From 1,000 € to 5,000 €: This is the average trading account size of Forex traders. This sum allows risks to be minimized while still considering good revenues. Swing trading can, once again, be a good strategy, although an even more recommended technique is day trading.
More than 5,000 €: With an investment of this kind, you will be able to apply all possible strategies, as it will greatly limit the risks. Plus, you can get tips and promotions from most brokers. The preferred method in this case is long-term investment.