Today many people are interested in investing in the stock market and, to that end, many are doing their homework and studying the basics of investing. The problem that a lot of people have is simply this; they have very little to invest. It’s with this in mind that we put together today’s blog about how to start investing with only $100. Enjoy.
There are two possible ways to start investing with $100 and both can be used by most new investors.
1) You can buy stocks directly from a company or their agent using Dividend Reinvestment Plans (DRP) and Direct Stock Purchase Plans (DSP), bypassing brokers and their commissions completely. There are many large corporations that offer both of these stock plans and have fees that are low enough to make investing $20 or $30 at a time worthwhile. Even better, many of these corporations will let you set up an automatic payment plan, making the entire process much easier.
2) You can also build a portfolio with Exchange Traded Funds (ETF). ETFs trade much like stocks and behave similarly to other assets like stocks, bonds and commodities. Because they track an index like NASDAQ or the S&P 500 and trade on the major exchanges, trades similar to stocks are available to investors. Since they require no minimum investment, investors can trade with a limit order, by them on a margin, they can be sold short and as little or as much money can be invested as desired.
In order to start with either one of these two options you’ll need a brokerage account. One that is highly recommended is TRADEKING. They are known for their excellent customer service, trading platform and learning materials as well as the most important thing, excellent commission prices. You can open an account there with $100 whenever you like.
The next step, once you’ve set up an account and login, is to go to the trading page on whatever brokerage accounts site that you’re using. By typing in the ticker symbol you’ll get the options chain of the company that you’re interested in purchasing.
After you have found the options chain page, what you want to do is find the furthest expiration date which would typically be about two years. Next, look for the strike price that’s indicated, which is usually on the middle column. What you want is to find the strike price that is closest to the price that you think that the company’s stock is worth per share. (The calls are normally on the left and the puts our usually on the right side of the column where you find the strike price.)
Next up is simply to buy in the call row that corresponds to your target strike price. Remember that one contract gives you the right to buy or sell the rights of 100 shares and multiply the price of your contract by 100. For example, if a contract is coded on the site at $0.25, once you multiply by 100 will have a contract that’s $25. If you are using $100 you’ll be able to buy for contracts at this price.
Once the underlying stock price hits you are favored strike price, you can sell to close out your contract. If all goes well the contract that you purchased for a few cents should now be priced at over a dollar. Of course, if your analysis hasn’t panned out they may actually expire worthless and you might lose your original hundred bucks. If you do this correctly however, most times you should come out on top.
Please keep in mind that this is about as basic an explanation as possible for investing with $100 and, if you want to have the best chance of success, make sure you put in your due diligence, study hard and read up on as much about investing as possible. If you have any questions about investing, personal finance or the stock market in general, please let us know and we’ll get back to you with answers and options as soon as possible.