Beginning investors often face tough challenges as they start to trade with a small account. If you’re trading with a relatively small account, that means you have limited capacity for handling any unexpected losses.
As a senior market analyst for MTI, Aaron Hunziker understands the difficulties of trading a small account because he’s helped many traders facing that same issue.
Hunziker brings more than 20 years of experience across all sectors of the financial services industry. He has also delivered investor education presentations at over 2,000 live events attended by hundreds of thousands of people worldwide. (Click here to register for the next free live event.)
We asked Hunziker to share his top ideas on how to invest small amounts of money for maximum potential payoff.
What are some basic tips for traders who are starting off with a small account?
Hunziker: If you’re looking for asset classes to trade, I would definitely recommend the Forex market, because you can start trading with small lot sizes. You can trade $20 per lot. So that’s really good for new traders because they can start small.
Forex traders can grow their account and their confidence. They can grow their skillset and their accounts can grow with them. So, that’s a great place to start trading. Not just because we talk about the Forex at MTI, but because it is truly the best starting place for traders.
For $500, you can open up a Forex account and you can start to build a small portfolio. If we’re talking about trading, then I think that’s definitely a great starting point.
Now, others may talk about the equity side with options and options contracts. Options trading gets a little bit more sophisticated for the average investor when you get away from just simply buying calls and puts and you start doing different types of concepts.
It may not be quite as much money that you need to trade options, but I believe that the equities market takes more education to be able to get to where you’re consistently profitable in that type of trading.
Should you have at least $500 to start trading?
Hunziker: Well, $500 is probably a minimum. It’s tough to get much lower than that amount. If you’re talking about the currency market, then you’re buying many lots and you can buy one mini lot for $20. And if you’re gonna put in the multiple trades to spread your positions out, you can spread that out over $500 pretty quickly.
If you’re getting into a securities opportunity with options, you can still buy smaller amounts. You’re still going to buy multiple opportunities because again, trading is a numbers game where you don’t win every trade. You don’t lose every trade either. But at the end of the day, if your probabilities are correct and your equity management is correct, then you can lose more trades than you win and still be profitable.
But that’s part of the equity management of starting with a small account. How do you break it out? How do you diversify it to maximize that money? And that gets back to your education.
If you asked me, “If you have $500, would you rather go and put that in the market right now or use it to get investor education?” I’d rather start with education because then you can go figure out how to get the other $500 later. But first, you really need to have the education surrounding the market, otherwise, you’re going to go through trial and error, which so many people do.
What is the best place to invest $1,000 right now for the greatest potential return?
Hunziker: If you’ve got $1,000 and want the highest potential returns, then I would say either getting into Forex strategies or looking into some of the cryptocurrencies opportunities.
Our MTI students are learning trading off of technical indicators and technical charts. So those two asset classes will give you the most leverage. In the United States of America, the Forex market gives you 50 to 1 leverage on your money. And, globally, we work with students who get upwards of 300 to 1 leverage.
But finding the best place to invest has a lot to do with your equity management. It also depends on your current lifestyle. If I’m investing $1,000, I always tell people not to invest what you can’t afford to lose. If you start right there, then you’re okay. You must know what your risk margins are, but also understand your risk potential and your risk management strategy.
But with that information, then you can start to venture out to other opportunities if you know how much funds you have and what you are willing to risk. So if I’m a retiree or plan to retire soon, then I’m certainly not going to be as aggressive as I would be in my early twenties. I have got a lot more room for margin of error as a younger person.
But again, if someone sat down and asked me, “How can I turn $1,000 into $2,000 quicker?” then my answer is going to be by entering either the Forex market (obviously making short-term foreign currency trades) or the crypto market. And then I would probably put the equities with options trading as my third choice right after those two other asset classes.
I’m speaking from my own perspective on how I would advise any investor that’s out there whether they’re an MTI student or not. You can’t go wrong with either one of those asset classes if you have the right plan. Again, it gets back to your level of education. You can get aggressive in how you trade all asset classes. It just depends on the strategy that you take.
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