Trading Stocks with Little Money

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How to Start Investing With As Little As $10

Some people will go their whole lives without investing any money. Why? The single biggest reason may be that they simply don’t feel they have enough cash to invest.

There’s a misconception that you need thousands of dollars to begin investing, but nothing could be farther from the truth… especially today. Technology and steady evolution in the investment industry have removed many of the barriers to entry. You can even get started with $10 or less.

First off, at the most basic level, you can open a retirement account — either an employer-sponsored plan or a self-directed IRA account — and begin payroll deducting very small amounts out of your paycheck and into your retirement account.

However, that may not be an option for you. If that’s the case, don’t despair. There are a number of investment apps that will enable you to begin investing with $10 or less.

If you’ve been avoiding investing because of a lack of money, avoid no longer. You can now begin investing with as little as the equivalent of just one or two lattes per week.

Here are some of the best investment apps that you can start with $10 or less. They’re not gimmicks, either — they’re legitimate investment apps currently used by millions of investors.

#1. Acorns

Acorns is a micro-savings and micro-investing app. It’s probably the best-known player in the field. The company claims nearly four million people are using the app to save and invest.

The app works by “investing your spare change” through an automatic process referred to as “round-ups.” You connect the Acorns app to your checking account, and when you make purchases using your debit card, the app rounds the charge up to the next dollar.

For example, if you make a purchase for $5.32, Acorns withdraws $6 from your checking account, pays $5.32 to the vendor, then reserves 68 cents for savings. Once your savings reach $5, the money is transferred over to the Acorns investment app.

In that way, not only does Acorns help you invest, but it also gives you the ability to save up the money you’ll need to begin investing.

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On the investing side, Acorns also functions as a robo advisor. That’s an automated investment platform that both creates and manages a portfolio for you going forward. Your only responsibility is to fund your account, which is happening automatically through the round-ups process.

  • Acorns offers Acorns Core as a taxable investment account and Acorns Later as an IRA. You can choose which account to fund or even split your funding between the two. Either portfolio is comprised of a mix of stocks and bonds that are held in low-cost exchange traded funds (ETFs) invested in several different asset classes.
  • There’s no account minimum, and you can begin investing when your savings balance reaches just $5. The fee for Acorns Core is $1 per month, regardless of the balance in your account.
  • The Acorns app is available for both Android devices and iOS devices.

For example, you can schedule a percent of your spending to go to the app when you shop or eat out using your credit card. The funds will then be transferred to your investment account. Alternatively, you can schedule automatic transfers to your investment account, with funds moved from your checking account to your Clink account.

  • There’s no minimum investment requirement, so you can certainly get started with less than $10 — or even no money at all — and fund the account through spending or transfers. But a major advantage is that you can use the app free of any fees. Of course, this will improve your investment performance over the long term.
  • On the investment side, your funds are invested in a portfolio of ETFs invested in stocks and bonds. You can choose the level of risk you want to take with your investments, from conservative to aggressive. One disadvantage with Clink is that it offers only taxable investment accounts, no retirement account options.
  • The app is available for both iOS and Android devices.

#3 Robinhood

  • The app is available for Android and iOS devices. The company claims the app has more than 5 million users who have performed more than $150 billion in transactions.
  • Since it isn’t a micro-savings app, you’ll need to set up your contributions to the platform. Those contributions will need to come from scheduled deposits, which you can set up as automatic transfers on a weekly, biweekly, monthly or quarterly basis.
  • Naturally, you’ll need money in your account to begin investing. You’ll probably need to begin investing with either low-priced stocks or ETFs, since Robinhood doesn’t permit trading fractional shares.
  • Although Robinhood has no minimum initial investment requirement and charges no fees, it does require you to have some knowledge of investing, since you’ll need to select the stocks and funds you want to invest in. It does not offer a robo-advisor service that would design your portfolio and manage it for you. You’ll need to do both yourself.

Like Clink, Robinhood offers only taxable investment accounts, not retirement accounts. But it’s still an excellent choice if you want to trade stocks and ETFs free of charge.

#4 Stash Invest

  1. The app is available for both Android and iOS devices and includes both taxable investment accounts and traditional and Roth IRAs. You can fund your account by making scheduled deposits from a linked bank account into your Stash Account.
  2. One of the major advantages with Stash is that the portfolio it designs is invested in not just ETFs, but also individual stocks. And since Stash allows trading fractional shares, you can purchase small slivers of high-priced stocks to include in your portfolio.
  3. Stash Invest charges a fee of $1 per month to provide investment advice. However, once your account balance reaches $5,000 or more, there’s an annual management fee of 0.25% (replacing the $1 per month charge). This is comparable to the lower end of the fee range for most robo advisors.

Among all the apps on this list, Stash Invest may be the best for you if you want not only to begin investing with a very small amount of money, but also to be more actively involved in the process. Since Stash makes investment recommendations that you must implement in your portfolio, it gives you an opportunity to learn the mechanics of investing. That can set you up for a lifetime of do-it-yourself, self-directed investing. That makes Stash Invest as much an investment tool as an investment app.

#5 Stockpile

  • Stockpile is best known as a platform where you can purchase gift cards toward the purchase of stocks. Since it’s now close to impossible to buy paper stock certificates, Stockpile came out with the gift card idea to enable people to give the gift of stock, particularly to children.
  • The app is available for Android and iOS devices, and the service even comes with broker-assisted trades.
  • There won’t be a problem purchasing even high-priced stocks, since Stockpile allows the purchase of fractional shares. You can even use fractional shares to create a portfolio of several well-known companies with a relatively small amount of money.

It’s important to point out that Stockpile doesn’t offer a managed investment service. When you invest through the company, you’ll be purchasing individual stocks and ETFs, so you’ll have to have some knowledge of investing and creating and managing your own portfolio. This is a true self-directed investment app.

Robo Advisors With No Minimum Initial Investment Requirement

Apart from investing apps, there are also full-blown robo advisors that are also available through smartphone apps.

#1 Betterment

No minimum investment is required, so you can begin investing with just a few dollars. Betterment charges an annual fee of 0.25% of your account balance. It offers taxable accounts, as well as retirement accounts. On taxable accounts, it even offers tax loss harvesting to minimize the tax liability generated by your investing activities.

#2 Wealthsimple

The platform typically charges an annual management fee of 0.50% of your account balance, but Wealthsimple is currently offering a promotion to manage the first $10,000 free. It offers both taxable investment accounts and retirement accounts. Your account can be funded by weekly, biweekly or monthly automatic deposits.

What separates Wealthsimple from other robo-advisors is its specialization in socially responsible investing (SRI), as well as its Halal Investing Portfolio for those of the Islamic faith.

#3 M1 Finance

The service does this using a concept called “Pies.” A pie can be either an existing template designed by M1 or one you create yourself. Each pie contains up to 100 stocks and ETFs and is built around a certain investment theme. And since M1 allows for fractional shares, a pie can easily include shares of many different companies with just a small amount of money.

M1 Finance is available for taxable accounts and retirement accounts, has no minimum investment required and charges no investment fees. It’s available for Android and iOS mobile devices.

Final Thoughts on How to Start Investing With Little Money

You may have difficulty wrapping your mind around the idea of investing with only $10, but it’s a necessary first step in the investment process. Just as with any other important endeavor in life, you’ve got to start somewhere. And if you don’t start investing when you have a little bit of money, you may never reach the point where you feel you have enough to ever get started at all.

There are plenty of apps available to enable you to begin investing with very little money. You don’t need to use them as investment platforms for the rest of your life. Rather, think of them as an opportunity to become involved in the investing process, on the way to bigger and better things.

As both your portfolio size and your investment experience grow, you can transition over to large discount brokerage firms. There, you can engage in self-directed trading or hold some or all of your money in a managed option. But that can never happen if don’t get started now.

Each of the apps on this list will give you an opportunity to begin investing with just a few dollars. That’s all you need to get the ball rolling. If you save and invest just $10 per week, that will be over $500 per year. But you don’t have to stop there. You can increase your investment in the future and even make lump sum contributions from financial windfalls, like your tax refund.

Once you get started — and that’s the key to everything that will follow — the rest will fall into place. And it all starts with a single, simple investment app that will allow you to start investing with only $10.

Trading Stocks with Little Money

To learn how to make money with penny stocks, you’ll want to understand all the ins and outs before you dive in. The experts at RagingBull are here to help.

Day trading penny stocks has skyrocketed in popularity in recent years due to the low barrier to entry and the ability to turn small sums into large gains. Savvy investors who have learned how to make money with penny stocks have the potential to make quick profits, but the vast majority of penny stock investors will lose their shirts.

So, can you make money on penny stocks?

The short answer is yes, but it’s important to remember that trading penny stocks isn’t like trading normal stocks. To learn how to make money with penny stocks, you’ll want to understand all the ins and outs before you dive in.

First Up: What are Penny Stocks?

Image via Flickr by mikecohen1872

Penny stocks are called many names, such as microcaps, small caps, stocks under $5, and more. But the one thing they share is that they’re usually not listed on a major stock exchange and require a totally different approach than other stocks.

Normal stocks are listed on NASDAQ, the New York Stock Exchange, and other major markets. Penny stocks, on the other hand, are often traded on the OTC, or Over the Counter, markets. This doesn’t factor into the trade, however, and most online brokers support this market.

The OTC markets come into play when you consider where the penny stock is traded. The OTC Bulletin Board, an electronic trading service operated by the Financial Industry Regulatory Authority, requires all companies to meet the minimum standards of keeping up-to-date financial statements. Penny stocks listed on publications like the Pink Sheets may not have met these requirements, giving you less information to base your trading decisions on and carrying a greater risk.

Cheap Exchange-Listed Stocks

Technically speaking, stocks listed on traditional exchanges aren’t penny stocks, regardless of how low their price is. If shares of a major company suddenly plummeted below a dollar, it wouldn’t automatically make them a penny stock. Plenty of factors could lead to a downturn in share price, even for the shares of a company that is still sound, reputable, and meeting the standards of the exchange.

As you’d expect, a company that has stock on the exchange offers a certain confidence to investors, since they’re not typically viewed as volatile. The NYSE and NASDAQ require a minimum market cap and share price to list, as well as annual listing fees. If a stock drops below the point where its capitalization or price per share is too low to meet these standards, the market has the option to delist the stock. If this happens, the stock moves to the OTC market. If you happen to own shares of a delisted company, you still own those shares, but they just won’t be worth as much.

If penny stock trading sounds like the right choice for you, check out the Ultimate Penny Stock Playbook from the market gurus at Raging Bull.

How to Find the Best Ones

As we mentioned, trading penny stocks is risky. Many of these companies are fly-by-night and highly volatile, which puts traders in a position to lose big. However, you can still make money trading penny stocks if you trade smart and know what to look for.

What makes a penny stock a potential money-making stock? There are a few characteristics to look for:

  • A company needs to make money. A company that loses money will always be a bad investment, no matter how low the share price is.
  • A company needs substantial assets or cash. Strong businesses shouldn’t need to liquidate future viability to appease creditors, because they have enough cash to account for contingencies.
  • A company must have a strategy in place. Penny stock companies don’t want to be penny stock companies, so the successful ones have a strategy in place to grow the business and get listed (or re-listed) on a major exchange. These goals should include rebuilding a long-term business and paying back investors.

These three characteristics help you determine a great penny stock to invest in and how to minimize your risk.

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How to Find Good Penny Stocks

Part of the challenge in determining how to make money trading penny stocks is finding them. Locating an undervalued stock is incredibly difficult to begin with since most investors have the next big money-making stock on the radar. With penny stocks, you’ll also need to find the undervalued stock that has a positive value, strong financials, and a promising outlook.

To make money selling the penny stocks, you first need to find someone to sell it at the bargain price. If a company turnaround is expected, a trader is going to hold on to shares to reap the rewards, which makes these shares more difficult for you to buy.

Once you’ve purchased the potentially lucrative penny stock, you also have to be sure you can turn around and sell it. You can always hold on to it and take a chance on it being hot in the future, but you got it for a bargain because it’s not hot right now. No one is looking to buy it.

Considering all of this, the best hope of making money with penny stocks is finding the hidden gem, buying it at a bargain price, and holding on to it until the company rebuilds and gets back on a major market exchange again.

Using Scanners to Find Penny Stocks

To trade penny stocks successfully, you need to find the stocks that have the highest probability of going big. For many traders, scanners are the best way to do that.

Traders use stock screeners to narrow a huge list of available stocks to a small list with the characteristics they’re looking for. By applying a filter to the stock screener list, you’re left with only the stocks that fit your parameters. Popular filters include chart patterns, price, performance, and volatility, all of which can help you find the stocks with the greatest potential for a big run.

Three specific parameters to find these stocks are:

  • Breaking news. Look for stocks that are gapping up because of a news break that could be lucrative for the company. Avoid stocks that have publicity from a buyout or something similar, however, because that usually means a breakeven or a loss for the shares.
  • Float. The float is the number of shares actually available to trade, which is calculated by subtracting the closely held shares from insiders, employees and the company’s stock ownership plan. Ideally, you want the float to be below 100 million shares, but 50 million is even better. When a stock has fewer shares to trade, there’s more buying interest that could drive the price up.
  • High relative volume. The relative volume is an indicator that tells traders how the current volume compares to the past trading volumes over a specified period of time, which gives you an idea of how “in-play” a particular stock is. The higher the relative volume, the more traders are watching and trading it, giving it plenty of liquidity for you to trade.

After you create your watchlist according to this criteria, you can wait for the market to open and see if there’s a breakout over pre-market highs for an entry point, or wait for a bullish flag pattern, which signals a move higher.

Reading Stock Chart Patterns

Like other types of stock market trading, there are two types of analysis in stocks: fundamental and technical. Fundamental analysis uses information about the company itself, such as management, debts, contracts, lawsuits, and revenues, while technical analysis uses patterns on a trading chart.

Fundamental analysis is the preferred method of most traders, though a combination of both analyses can prove more beneficial than using one over the other. Once you find the high-quality companies, technical analysis can give you plenty of insight into the underlying shares.

The relative strength index is a momentum oscillator that measures the speed and change of price movements on a scale of zero to 100. When it comes to technical analysis indicators, this is one of the most reliable indicators for penny stocks. Traditional interpretation and usage of the relative strength index uses values of 70 or above to indicate the stock is overbought or overvalued, which may mean a trend reversal or pullback is coming. A value of 30 or below is interpreted as indicating a stock that’s oversold or undervalued, which may signal a trend change or correct price reversal on the up.

Here are some of the most reliable patterns to look for:

  • Bottoming-out patterns. Bottoming-out patterns are another reliable way of assessing penny stocks. This pattern emerges after a long, sustained slide in the share price. The trend goes downward over several months, then goes sideways for a few weeks. When this occurs in conjunction with a sudden increase in trading volume, the shares are expected to enter a sustained recovery in price. This is especially true if it occurs with an oversold position.
  • Price dips. Penny stocks are thinly traded, so they can have incredible price volatility due to the imbalance in buy and sell orders. This can lead to shares dipping significantly when the sellers outweigh the buyers. If a stock suddenly drops without any discernible reason and on a low trading volume, this is a price dip pattern. Price dips provide an opportunity, however, because they typically reverse. Taking advantage of price dips is all about being in the right place at the right time, keeping a buy order on a thinly-traded penny stock that’s well below the recent price and getting some of these shares at a lower price.
  • Top-out pattern. A top-out pattern has similar principles as the bottoming-out pattern, but in reverse. With this pattern, shares have been climbing for long periods of time, but appear to be leveling off or turning sideways. Sometimes this is just a short break before moving back up, but if it occurs with a penny stock, especially alongside a declining daily trading volume and overbought condition, others may be preparing to move in on it. Shareholders are looking to sell to capture the high prices, while buying ends, leading to tumbling share prices.
  • Share consolidation. Share consolidation is when a base of shareholders turns over, and it’s a great sign for penny stock prices. Stockholders have high expectations for the share they bought, so they intend to hold on to them. The frustrated shareholders are looking to get out, however, so there’s a transformation happening. The penny stock will trade sideways on a higher-than-average volume, which is a bullish indicator for the future of the shares. The stocks will reach a tipping point when there are no more sellers looking to get out and a small percentage of owners holding on, so the next move for the stock is high.
  • Candlestick chart patterns. Candlestick chart patterns are unique in that they can show if a penny stock’s trend is about to reverse, or if prices may rise or fall in the short term. Candlestick chart patterns speak to investor psychology, which has an incredible impact on the state of the market. Generally, candlestick patterns are a great way to confirm the existence of other patterns.
  • Gapping. Gapping is when a share opens higher or lower than it traded the day before. If a share gaps higher, it’s a bullish indicator, and if it gaps lower, it’s a bearish indicator. This is a technical indicator that can be misleading, but it still has enough validity to belong in your arsenal of penny stock strategy.
  • Going against trend. Going against the trend is one of the most reliable technical indicators with any type of stock shares, but it works incredibly well for penny stocks in particular, due to its ability to identify stocks that perform well under pressure. If the market as a whole has significant dips and a specific industry sees a drop, the shares that stay steady in price are the ones standing to gain when the market recovers. For example, if the shares you’re watching fall only slightly, stay steady, or even increase in price while the rest of the stocks are going downhill, that’s a bullish sign for that stock.

Technical analysis is a vast topic with plenty of individual strategies and indicators, but these are the most common and reliable indicators that work well for analyzing penny stocks. Just be sure to remember that they aren’t infallible and should be worked into a larger strategy.

Using Financial Ratios

Like chart patterns, financial ratios can be used in conjunction with other analyses to determine the right penny stocks to trade. With adequate financial disclosure, which shouldn’t be a problem with more reputable penny stock companies, the same analytical methods used for larger companies can be used to assess the worth of a penny stock. A positive trend on the balance sheet and strong numbers are important because so much of a penny stock’s value is based on projected performance.

  • Liquidity ratios. Liquidity ratios, which include the quick ratio, cash ratio, and current ratio, are the first ratios that you should consider in analyzing penny stocks. Penny stocks can’t always cover their short-term liabilities within a given time frame. Lower liquidity ratios are a good indication that a company is struggling to stay in business or grow.
  • Leverage ratios. Leverage ratios are another important subset of ratios. These are similar to liquidity ratios in that they focus on a company’s ability to cover its debt, though this pertains to long-term debt and is broken down into debt ratios and interest coverage ratios. Debt ratios will shrink or expand, but expanding ratios should only occur if the company is trying to support future growth and development. Interest coverage ratios measure the debt load and the company’s ability to manage it, so higher interest coverage ratios are preferable.
  • Performance ratios. Performance ratios include subsets like gross profit margin, net profit margin, and return on assets. These help quantify money made at each level of the income statement, which should reflect steady and sustainable growth in operating earnings.
  • Valuation ratios. Valuation ratios measure the appeal of the stock at the current price. In the case of penny stocks, stock shares can be undervalued. Price-to-earnings ratio is the most common ratio for stocks, but it becomes meaningless if a company’s earnings are zero or negative. With penny stocks that fall into this category, the price-to-sales and price-to-cash flow ratios are more effective.

These financial ratios can be calculated and compared to the same ratios for previous periods or projected ratios, as well as ratios of direct competitors or the overall market to gauge the company’s value.

Minimize Risk with your Trading

Do penny stocks really make money? Yes, but they can also lose a lot of money. Penny stocks are a risky investment, but there are some ways to lower the risk and put yourself in a position for money-making penny stock trading.

  • Pick stocks from companies in the OTCQX tier of the OTC markets, because this tier has stricter financial standards for listed companies. These companies must comply with the U.S. securities laws and meet higher standards of operations compared to OTCQB and OTC Pink markets.
  • Avoid Pink Sheet stocks, which are prone to manipulation and fraud. The most reputable companies are not only more likely to give you a return, but they’re also a less risky investment.
  • Avoid pump-and-dump scammers. Many OTC penny stocks will be promoted as the next big breakout, but the reality is that these large companies that provide a near-guarantee of success start with a high-priced IPO, not on the penny stock market.
  • Avoid liquidity penny stocks. Most penny stocks have a volume of around thousands of shares a day, but penny stock companies with breaking news could have a high volume of millions of shares in a day. How do penny stocks make money for you? This is the time when you’re likely to cash in, and in the penny stock world, there’s some major event nearly every day.
  • Don’t overtrade. Once you find the stocks you want, buy where you think other traders will enter, know when to sell penny stocks, take quick profits, and adjust the stops for small gains that add up over time. You may get lucky and have a big win on occasion, but most of your money will come from these smaller trades.
  • Focus on trading and not investing. Trade penny stocks every day, and you’ll find that you’re making money from buying and selling penny stocks, rather than investing in the next big hit. Added up over weeks, months and years, you’ll find that you’re raking in cash.

In Closing…

With the risk and uncertainty of trading penny stocks, this option isn’t a great choice for everyone. However, if you can tolerate a little risk and think quickly on your feet, penny stock trading can be a great source of income with the potential for massive gains.

Now that you know a little about how to make money investing in penny stocks, you can educate yourself even more to become an expert.

If penny stock trading sounds like the right choice for you, check out the Ultimate Penny Stock Playbook from the market gurus at Raging Bull.

With this eBook, you’ll learn all the secrets and strategies the pros use to exploit “blue chip” penny stocks, which are the best money-making penny stocks, and earn incredible profits so that you can make a living trading penny stocks.

It won’t cost you a penny, you can Download your free copy today to get started.

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