# How To Start Trading Stocks With \$500

This is a question I tend to get asked a lot. It doesn’t necessarily have to be \$500, but how can I start trading stocks with a smaller account size, such as \$500?

Here is an example of the question I often receive:

I love when I get questions like this because it shows that people are interested in trading, even with a smaller account.

I promised I would answer this question in an article, so here we go!

## How to Start Trading Stocks With \$500

Before we get started, let’s talk about realistic trading goals by using some simple math.

Personally, when I use the PowerX Optimizer, my goal is to find stocks that have at least a 60% return on investment or ROI over the past year.

You have to understand that consistently making 60% on your investment in the stock market is an incredible achievement.

Naturally, we are going to have some trades that double or even triple our money, but we are also going to have some losing trades as well. In the end, a 60% return is both a realistic and impressive goal.

## Now, Let’s Double Those Expectations!

For this specific article, I want to raise expectations and get even more optimistic about growing your account.

I want to aim for 120% growth in your account this year. If you start with \$500, that means we are making a profit of \$600 from trades this year, bringing your total account balance to \$1,100.

Another way to look at this growth is \$50 per month. We take our \$600 gain and divide it by 12 months, which gives us \$50. If you ask me, that sounds more than reasonable, but at the same time, it doesn’t get me that excited.

Let’s take a deeper dive into how we can grow our account even more!

## What Can I Invest In With \$500?

So the good news is that most brokerages will allow you to open an account and start trading stocks and options with a \$500 balance.

Alternatively, you could trade in other markets like Forex. In my opinion, Forex trading is betting against the house so you’re almost guaranteed to lose money. I’ll do another video on that topic later.

Let’s stick with stocks for now because it’s what I know best!

Take a look at the Dow 30, which are considered the blue-chip stocks in the US markets.

You can trade stocks for companies like Pfizer (PFE), Apple (AAPL), or JPMorgan (JPM).

I suggest never putting all of your eggs into one basket, though. I like to keep at least five different trading positions at all times.

So let’s divide your initial investment of \$500 into 5 different positions of \$100 per stock.

But if we look at the stocks in the Dow Jones, only 7 of them are trading below \$100 per share as of May. That means you can only buy one share of seven different companies in the Dow. Not ideal.

Of course, you can also look to the NASDAQ or S&P 500 for stocks as well. My point is that when you start with a smaller amount of capital, you are restricted in the stocks you can buy.

To be honest, it’s a significant handicap for trading. It’s kind of like going grocery shopping for the week with only \$20, it’s usually not going to get you much.

If only there was a way to trade stocks with a smaller upfront investment and the potential for larger gains. Are you thinking what I’m thinking? Let’s move on to options!

## Can You Start Trading Options With \$500?

Options trading is an excellent, pardon the pun, option for traders with smaller accounts.

Most options contracts are priced between \$1.00 and \$2.00 per contract. Of course, the problem is options contracts come in packs of 100. This means a \$1.00 contract will actually cost you \$100.

So in the end you will be dealing with the same problem as trading stocks: to diversify our portfolio, we need to spread our \$500 amongst options that are less than \$100 or \$1.00 per contract.

One problem with this is that when options contracts cost less than \$1.00, they are usually referred to as ‘out of the money’. The probability of making a profit on these options is much lower than an ‘in the money’ option.

Say you want to trade an option on Disney (DIS) stock. Right now, DIS is trading at about \$115 per share.

If you expect Disney to rise back to \$130 per share then normally I would suggest looking at the \$110 call option contract. This would provide a reasonably high percentage of success.

One problem: in the money call options for DIS cost between \$8.95 and \$9.10 per contract. Remember, we have to multiply the premium by 100 shares. So we would have to pay \$895-\$910 for the \$110 contract.

Since we only have \$500, this option will not work for us.

Looking further up the options chain we find the \$155 call option which is out of the money.

You will notice this contract only costs \$0.65-\$0.70 which is about \$60-\$70 in premium you will need to pay. This works with our \$500 account.

But there’s another problem: the probability of profit falls significantly with an out of the money contract.

The premium is much cheaper but the chances of profit are slim to none.

So what’s the solution?

## Summary: How To Start Trading Stocks With \$500

This probably isn’t the solution you were looking for in this article. Unfortunately, opening an account and starting to trade with only \$500 is a tall task.

The odds of making consistent profits are really stacked against you. Overall, even if you are successful, trading with an account of only \$500 would mean:

1. You would only make about \$50 per month, which really isn’t a lot.
2. You are limited with the stocks you can trade. Your choices are one share of a stock or a few shares of a cheaper stock.
3. When it comes to options your only choice is cheap, out-of-the-money contracts that have little chance of profit.

I hate to be the bearer of bad news, but most people who start with only \$500 will likely lose this all within a few weeks or months. Not only is it difficult to trade multiple positions, but the profits from those trades won’t be high either.

Ultimately, my suggestion is to try and save up some more money in your account before you start trading.

I like to think about my brokerage account as a business. If you are starting it with only \$500, the chances of making massive profits are pretty slim.

As you are saving more money, I suggest practicing on a trading simulator to hone your trading strategy. This will increase your chances of success once you have more money in your account.

One last suggestion: learn how to earn premiums by selling options contracts in The Wheel Strategy. It takes some time to develop the skill, but it could be a way to grow your account at a faster rate.

You can also grab a copy of my latest book on The Wheel Strategy HERE.

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