The trading craze is here to stay.
It’s easier than ever before to download an app, connect your bank account, and start dropping money on stocks like it’s a video game.
But this is a game with very real consequences. Thousands, if not millions, of first-time investors are learning that lesson the hard way because they haven’t put in the time and effort to learn what they’re doing.
For starters, there’s plenty of research on this, and if you just started trading, you should know: The news is not good.
As much as 90 percent of all traders fail to make money when trading on the stock market, according to statistics from WealthWithin. Furthermore, of that 90 percent, 80 percent lose money and just 10 percent break even.
The thousand-dollar question is: How do you get in the other 10 percent that actually make money from trading?
“To be successful in trading the stock market, you need to do what the majority of traders don’t do,” Dale Gillham wrote for Wealth Within. “Everyone aspires to be in the top 10 per cent who consistently make money when trading the stock market, but few are willing to put in the time and effort to achieve this.”
Here are some ways to maximize your chances of success in the stock market, especially if you have less than $1,000 to spend.
Invest in Your Education First
More than 80 percent of traders quit within the first 5 years.
If you really desire to master trading and find yourself in the other 20 percent that actually succeed, then you have to stop trying to learn by trading, and start learning to trade.
Thankfully, this is the Age of Information, and those who are willing to put in the time and effort will find nearly endless resources available to them, from podcasts to online courses to webinars to articles like this one.
You can find a great free option with online courses offered through Ameritrade and its “immersive curriculum.” Udemy offers a solid course in the basics for not much money, and Certus Trading is a great choice for those who have some understanding of trading, have been doing it for a year or so, and want to up their game.
Try a Trading Simulator
Remember playing the video game Flight Simulator? Although it started as a game, the simulator was sophisticated enough that you could actually learn quite a bit about flying just by mastering the game.
Well, that’s what a demo trading account can do for you with trading. Just like the flight simulator, you can practice and hone your skills without worrying that a crash will actually kill you.
This is another example of leveraging the availability of modern technology for your benefit. In the old-school, it was all about using a pen and paper and calculator.
“One of the major advances – and a boon for money managers, brokers, and financial advisors of any type – made possible by the development of sophisticated computer programs is the ability to create the best stock simulators or trading simulators for practicing trading techniques and testing out trading strategies,” according to an article from the Corporate Finance Institute.
Check out that article for three great options for trading simulators.
Find the Right Broker
In the past, it was often necessary to have a minimum amount of capital to hire a broker. That has changed in recent years, and just $500 is often enough to start an account.
However, it’s important to realize that even with lower entrance requirements for trading, many forms of trading still require at least a few thousand dollars to be successful. Holding a position overnight or investing in futures are both relatively expensive forms of trading. For amounts less than $1,000, the costs of trading futures may outweigh the benefit.
However, the increased competition among brokers means that many other barriers to trading have disappeared.
If you’re starting with less than $1,000, your best bet is to find a trustworthy broker that won’t charge large trading fees, but still offers the support of a trading platform — as well as solid advice.
Most of all: remember that most traders need at least several years to learn how to trade successfully. Be patient, do your homework, and keep your eye on the long-term.