Yes, it is absolutely possible to start trading on a small budget. Gone are the days when aspiring traders had to have quite some money in their kitty before they could think of trading in the real market, by opening a broker account; however market has undergone many changes and has evolved since, and now it is possible for a trader to trade even with small money, however as always, trading cautiously is the key to trading; the kind of money you may have not withstanding. In this post we will learn about different methods to trade on a limited budget.
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1. Direct Purchase Plans
For those traders who are keen to invest in individual companies whose shares are openly traded in the market can do so with the help of Direct Purchase Plans. Direct Purchase Plan as the name itself is suggestive of its meaning is a type of investment where the trader directly buys shares from the company; there is no brokerage account, no middleman, no commission involved in this type of trading.
It should be noted that not every company offers this option for traders; also such companies are hard to find; and over and above that they are not allowed to advertise their Direct Purchase Plans; for traders to get their hands on such companies and their plans, they will have to do a bit of research by visiting websites of different companies to know if these companies offer Direct Purchase Plans for investors or not. Traders interested in this plan should generally look up the investor relations section of the website.
The advantage besides no commission involved with DPP is that person with a minuscule budget can also trade here. So much so that traders are allowed to buy shares in fractions too. For example, if value of one share is $200 and the trader has the budget of only $100, he is free to apply for half a share and as he builds saving he can go on adding number of shares to his portfolio. This facility is not available for regular traders or with traditional broker formats.
Choose brokers who attend to needs of traders with limited budget. These brokers, though they may charge a fee for allowing you to trade by opening an account with them, it’s a great convenience for traders because some such brokers allow traders to trade with as little as $4. They can build their portfolio slowly. Besides fee these brokers also have some rules and restrictions for their traders which the traders are expected to abide by.
2. ETF Stocks
For traders who are interested in investing mutual funds but do not have initial investment to afford buying mutual funds , ETF makes for a great option for them. ETFs are like stocks which can be bought from any broker and are priced much lower than what mutual fund investment would cost. Traders can buy a few ETF stocks.
The flip side with ETF is that trader cannot buy shares in fraction unless your broker allows it (which not many do), trader have pay a commission on trading ETFs and these commissions are significantly high and if trader decides to get into several trades he will realise that the commissions are so high that they are gradually seeming to reduce the capital that the trader had saved and set aside for investments. This is one reason why many people do not prefer ETFs.
3. Low-Cost Fund Companies
Fourth option for small traders to start investing is by choosing no-load fund companies that offer investment for small traders; though originally these investments ask for quite a big money but some companies have the option for new investors where big money is not a requirement. These companies are called low-cost fund companies. A regular no-load fund company may be selling their funds for $2000 but if they have low cost funds for new investors they may do it for as little as $100. It is for the trader to look for such companies or ask their brokers or financial consultants about it.