How much money is enough to start trading? - IIFL



How much money is enough to start trading?

New investors often believe they need to start with a massive amount of money in order to start stock trading.

Written by Web Desk Team | Published :December 29, 2022 , 9:00 am IST

New investors often believe they need to start with a massive amount of money in order to start stock trading. However, this misconception is far from reality. Stocks in India range from as little as a single rupee per equity share all the way to nearly a lakh. As trading involves buying and selling shares in order to earn a profit, you can start trading with as little as Rs 10. However, if you’re thinking of making thousands of rupees each day just by trading stocks or other assets using such a small amount then you’re likely to be disappointed.

So, while you can start with a very small amount for trading, having a bigger corpus helps you in making sizable returns. As a new trader, anything between Rs 1,000 to Rs 5,000 is a good amount to get started. You can use this corpus to also test strategies and understand market fundamentals. Ideally, in stock trading experts advise not to use a corpus of not more than 1/3rd of your investment surplus of your total amount available for investment. This investment strategy is the X/3, which allows investors to allocate one third of their money into equity and trading while also ensuring that they are not overexposed to the market.

This is because one of the biggest predictors of success in the stock market is not the ability to find stocks which can give outsized returns but it is the ability to minimise as much risk as possible. This school of thought has been espoused by trading legends like Benjamin Graham, whose teachings on the margin of safety have informed generations of traders like Warren Buffet, Irving Kahn and John Templeton. A margin of safety can be established by either educating yourself about the underlying value of an investment or by understanding market movement mechanics. Learning both will allow a trader to understand where the market is likely to move and also to identify opportunities for safe trades.

So when you’re entering stock trading, start with a modest amount of between Rs 1,000 and Rs 5,000. You should not invest more money in trading than what you would be willing to put to risk or even lose. As you learn how to minimise risks, learn market safety fundamentals, and safe allocation of money, you can slowly start to increase your investment corpus just by simply adding the returns that you are earning on your trades. This ensures that you don’t need to unnecessarily add more money out of your own pocket into your trading corpus while still increasing the corpus to open up more opportunities.

You can start stock trading with a small amount and increase your investment in shares as you learn nuances about the market and gain experience. To gain more knowledge and learn the secrets of success in stock market log on to: https://www.5paisa.com/demat-account

For new traders, while there is no limit on exposing your money to stock trading, everything depends on your understanding of the market, knowledge about stock trading and gathering of information about companies you choose to invest in. While investing a higher amount in stocks may open up possibilities of higher return, your risk appetite will decide how much money you really want to expose to the market. It’s advisable for new traders not to be lured by the market with speculations of higher return and start stock trading with a small amount.