How should I begin investing real money as a student?

Question

(Skip to the 3rd paragraph for the basics.)

Alright, so for starters, I'm in high school. I'm 17 and have two jobs: one is for fun, basically, and the other is a job that I can live off of. I go to a nice private high school that provides us with iPads. I recently learned about stocks and got into this app called Stock Wars. I know the basics and some more of the advanced stuff, and I also know how to calculate everything about a stock and everything. I'm up before 7:00 and name at 4:30. I spend almost all my time fake stock trading, and I've done really well. I trade as a hobby, so I am constantly checking my fake stocks, and I even have alarms set for them. I buy and sell quickly because it's my main pastime. I'm really good at trading long term because of my personal interests, and I know when stocks in military, sports, and video games will be good. I've done really well so far... with a fake $100,000. I've tried trading quickly with a reasonable amount that I would likely have, and I haven't had any luck day trading.

I really want to get into it, and I'm currently working on getting a brokerage account on Ameritrade or some others. I in total have around $1000 and I'm probably looking to only invest $400-$600. I've been saving up for nice computer for a long time, and I just got enough but I also got into stocks so I'm kinda stuck. I want to invest, but if I do, I want my money back quick so I can get the computer too.

Basically I have $400-$600 to invest, I have all the time in the world to do this, my dad can help me on a personal level, and I'm doing this as a hobby and for spending money. I'm aware of the risks and the commission fees. I know how to diversify my stocks and I know about losing money. I do not NEED money for anything and I really have nothing to lose. I am aware the fake game does not give me any experience on the real world and I'm not going to blow all my money on something I know nothing about.

Recently I started investing in amounts that I would be using realisticly and I'm only making a couple of cents or a few dollars (with commission fees)

Can I start trading with that amount? If so how? Is it possible to trade daily, or will I have to wait a long time Before I make the money back? Do you have any suggestions on a broker? Can I make money for just day to day use? Am I going to be stuck make $2-$3 at a time or am I doing something wrong?

Answer 1

Without knowing what you are trying to achieve - make a bit of pocket money, become financially independent, invest for retirement, learn trading to become a trader - I'll give you a few thoughts ...

The difficulty you will have trading with $400-600 is that brokerage will be a high proportion of your "profits". I'm not sure of the US (assuming US rather than AU, NZ, etc) rates for online brokers, but UK online brokers are the order of £6-10 / trade.

Having a quick read suggests that the trading is similar $6-10/trade. With doing day trades you will be killed by the brokerage. I'm not sure what percent of profitable trades you have, but if it is 50% (e.g.), you will need to make twice the brokerage fees value on each profitable trade before you are actually making a profit.

There can be an emotional effect that trips you up. You will find that trading with your own real money is very different to trading with fake money. Read up about it, this brief blog shows some personal thoughts from someone I read from time to time.

With a $10 brokerage, I would suggest the following

• Find yourself a good and cheap online broker
• Prepare and write down your trading system methodology whatever that is - both buy and sell
• In only two or three stocks at a time, perform trades

Another option, which I wouldn't recommend is to leverage your money, by trading CDFs or other derivatives that allow you to trade on a margin.

Further to that, learn about trading/investing

• technical analysis
• fundamental analysis
• passive vs active trading
• long term / medium / short / day / HFT etc.

Plus other investment types I have written about earlier.

Answer 2

I like your enthusiasm and initiative.

However, there are a few things you need to consider that you haven't yet thought about.

First, it is important to remember that trading with fake money is not the same as trading with real money. In the fake world, you have $100k. With this fake money, you can do reckless things with it, such as put it all on one stock. If you lose, it costs you nothing, so you don't have an emotional attachment to it. With real money, it will feel different, and that is something you haven't experienced yet.

Second, you mentioned that you are good at making picks. With all due respect, I suggest that you aren't old enough to make that determination. You haven't been trading for long enough to determine if you are doing well at it. :) That having been said, I don't want to completely discourage you from trying something new.

Third, you mentioned long-term investing, but you also said that you need to make your money back quick and mentioned trading daily. Those things aren't really compatible. I wouldn't consider what you are doing as long-term investing. With the type of investing you are doing, picking individual stocks and hoping for the value to go up in a relatively short time-frame, it is similar to gambling. The risk of losing is very much there, and you shouldn't be investing money this way that you aren't prepared to lose. If you need the money for something soon, don't put it in the stock market.

Never forget this. What can happen is that you start with small amounts of money, do well, and then, thinking that you are good at this, put in larger amounts of money. You will eventually lose. If you put in money that you need for something else, you have a problem.

If you are trying this out for education and entertainment purposes, that is great. But when it starts to get serious, make sure that you are aware of the risks. Educate yourself and be smart.

Here is what I would suggest: If you want to try this short-term day-trading type investing, and you understand that the money can easily be lost, I would balance that with investing in a more traditional way: Set aside an amount each month to put in a low-expense index mutual fund. Doing this will have several benefits for you:

• It will teach you about another (perhaps smarter) type of investing. It will also allow you to compare the two types of investing (tortoise vs. hare).
• It will get you started saving/investing for your future, taking advantage of the magic of compounding over time.
• It will lower your overall risk.

As for your specific questions about stock trading with small amounts: Yes, you can trade with small amounts; however, every time you trade, you will be paying a commission. Even with a discount broker, if you are trading frequently, the commissions you will be paying will be very significant at the dollar amounts you are talking about. The only way I can see around this would be to try the Robinhood app, which allows you to trade without paying sales commission. I have no experience with that app.

Answer 3

I started my account with $500 so I know where you're coming from. For the words of caution, in about 2009 we entered a pretty significant bull market. During this period you could basically buy almost any big name company and do pretty well for yourself. So don't be too cocky about your ability to pick winners in the middle of a bull market. Over the last few years you'd have to try pretty hard to consistently pick losers.

I absolutely think you should put real money in the game when you have this sort of interest. However, at your $400-600 level broker fees will eat any sort of active trading or short term profit you could muster. Stock trading is not a great way to make money in the short term. If you're looking to save for something specific you should put that money in a zero risk savings account.

You should do more research on brokers. Find the lowest possible trade commission at an organization where you can meet the account opening minimum. A $10 commission is 11% more than a $9 commission.

Answer 4

I think you have a really good idea, kudos to it. It will be difficult to break eve, and while you stressed the fact that you are ready to part with this money, it would be interesting for you not to part with this money just for the sake of trading. You will be frustrated because you are "winning" and breaking even or even losing money in the process. Think about that.

For somebody with limited experience the derivatives market carries a very high risk also as everything in this matters carries high or very high yield. Trading futures on margin can actually work but I think you will need a bit more money. Check the mini contracts of infinity futures and calculate the commissions. You will be paying more for a contract, yes. you will need more money for your maintenance margin, yes, but if you day-trade and you have a cheapo broker this will be substantially lower. Gold contracts pay about 10 to 1 so a mini contract of 33 ounces will pay you 33 dollars per 1 dollar move. Your commissions will be about 4/5 usd in a discount broker and you will need to pay some exchange house fees, maybe about 15% of your trade will be fees. Check the contract specs and costs.

As somebody said before, they wouldn't recommend trading on margin but with an account of that side I wouldn't know anything else. Trading physical gold on margin could also be an option.

Just my 2 cents.